Recruit Holdings Co Adr

Thank you for joining the Recruit Holdings FI 2025 Q1 Earnings Conference Call. This call is a simultaneous translation of the original call held in Japanese, provided solely for the convenience of investors. I'm Mizuho Shin, Manager of Investor Relations and Public Relations. Today we will begin with a presentation by Junichi Arai, Executive Vice President and Chief Financial Officer, followed by a Q&A session. Please note that today's session, including the Q&A, will be posted on our IR website after the event. With that, we will now begin from the presentation.

I am Junichi Arai, and today I will be presenting the Recruit Holdings FI 2025 Q1 financial results. As previously mentioned, starting this fiscal year, we have integrated HR technology and HR solutions, which includes the job advertising business and the placement business from matching and solutions. As a result, matching and solutions now consists of marketing solutions including SaaS, and accordingly, the segment name has been changed to Marketing Matching Technologies or MMT. To facilitate a comparison with our FI 2025 segment outlook and results, we are presenting FI 2024 Pro Forma segment financial data, which assumes the integration of these businesses had been in effect from April 1, 2024. Unless otherwise noted, all comparisons are made against the same period of the previous year on a Pro Forma basis, comparisons with the previous quarter will be noted appropriately. Additionally, starting this fiscal year, we have renamed our key financial metric, previously referred to as adjusted EBITDA, to EBITDA plus S. And we will clearly distinguish between the two metrics by referring to the figure, before adding back share-based payment expenses to EBITDA plus S as EBITDA. Let me begin with key highlights from the FI 2025 Q1 financial results. First, regarding the consolidated results. We will not be changing the consolidated business forecast for this fiscal year from the disclosure on May 9, at this time, taking into account the results of the first quarter, the workforce reduction in the HR technology business announced on July 10, U.S. time, and the current business environment. As already communicated in the Tokyo Stock Exchange Voluntary Disclosure on July 11, the financial impact of HR technology's workforce reduction has already been largely incorporated into the EBITDA Plus S outlook for HR technology, which serves as an important component of the consolidated guidance. The consolidated FI 2025 Q1 results were broadly in line with our expectations. While signs of recovery in US job postings have yet to emerge. And consolidated revenue declined by 2.5% each segment, particularly MMT, focused on further improving productivity, resulting in the highest ever quarterly EBITDA plus S margin of 21.3%. As for HR technology, supported by continued improvements in monetization, on US dollar basis, revenue in the US increased 0.9% year-over-year. And reflecting seasonal trends, increased 6.3% quarter-over-quarter. Revenue in Japan decreased 4.4% year-over-year on a Japanese yen basis and 4.3% quarter-over-quarter. This was primarily due to the impact of Indeed Plus revenue on a net basis, as previously explained in May. Segment EBITDA plus S margin increased from the same period last year, reaching 35.0%. In staffing, Japan showed steady performance, whereas in Europe, the US, and Australia, revenue declined by 12.2%. As a result, segment revenue decreased by 3.4%, with segment EBITDA plus S margin of 6.6%. In marketing matching technologies, revenue increased by 7.1% amid a stable business environment in Japan, while cost controls resulted in significant expansion of EBITDA plus S margin to 31.6%. Regarding the capital allocation measures, The share repurchase program with an upper limit of 450 billion yen initiated in March 2025, reached its maximum purchase limit significantly earlier than initially planned and was fully completed on June 18. This was driven by two TOSNET3 transactions executed in March and April totaling 98.5 billion yen. as well as effective progress in repurchases through an appointed securities dealer with transaction discretion, largely due to the stock price downturn in April. Net cash and cash equivalents as of the end of June decreased to 563.5 billion yen, primarily due to the early completion of this share buyback program. At this time, there is no change in our policy of reducing net cash to a level of approximately 600 billion yen by the end of March 2026. Now I will provide further details on these points. As I mentioned earlier, we are not changing the full-year consolidated earnings forecast disclosed on May 9 at this time, considering the first-quarter results, the reduction of approximately 1,300 employees in HR technology announced on July 10 and the current business environment. While we do not expect a significant increase in revenue given the ongoing uncertainty in the labor market, particularly in the US. We aim to increase EBITDA plus S by pursuing operational efficiency, and ultimately seek to increase basic EPS by also factoring in the effects of share buybacks. As already communicated in the Tokyo Stock Exchange Voluntary Disclosure on July 11, the financial impact of HR technology's workforce reduction has already been substantially factored into the EBITDA plus S outlook for HR technology. which was announced on May 9 and serves as an important component of the full-year consolidated guidance for this fiscal year. Therefore, we are not revising our consolidated guidance at this time. Additionally, there are no changes from the May 9 forecast regarding profit attributable to owners of the parent and basic EPS. To explain a bit further, the workforce reduction of HR technology will positively impact our consolidated EBITDA and margin, due to reduced employee benefit expenses. However, as I just noted, this was already factored into our main 9th full-year outlook for HR technology, as part of operating expenses. Additionally, while we expect share-based payment expenses to be lower than initially projected, the resulting impact on our consolidated EBITDA plus S and its margin is limited, as these two effects largely balance each other out. As a result, we have determined not to revise the current full-year consolidated EBITDA plus S guidance of 697 billion yen, up 2.7% year-over-year, with a margin of 19.8%. Regarding the Q1 consolidated results, they were broadly in line with our expectations at the beginning of the fiscal year. While revenue in marketing matching technologies increased, revenue in HR technology grew on a US dollar basis, but declined on a Japanese yen basis, and staffing also saw a revenue decrease. As a result, total consolidated revenue decreased by 2.5% to 878.8 billion yen. Gross profit decreased by 1.7% to 521.8 billion yen, with a gross margin of 59.4%, flat compared to the same period last year. As a result of continued efforts to improve productivity, EBITDA plus S was 187.1 billion yen, which is equal to an increase of 4.5%. Resulting in the highest ever quarterly EBITDA plus S margin of 21.3% supported by margin expansion in MMT. EBITDA increased 1.3% to 163.5 billion yen. and the EBITDA margin increased compared to the same period last year, reaching 18.6%. Profit attributable to owners of the parent increased by 13.6% to 120.9 billion yen. Basic EPS increased by 21.5% to 83.97 yen. Now, I will explain the first quarter results for each SBU. First, I will talk about HR technology. Segment revenue for Q1 FI 2025 increased by 3.6% to 2.36 billion US dollars. Compared to Q4 FI 2024, revenue increased by 5.9%. On a Japanese yen basis, segment revenue decreased by 3.8% to 341.7 billion yen, and increased by 0.4% compared to Q4 FI 2024. Indeed's real-time hiring lab data continued to show a gradual cooling in the U.S. labor market, with relative resilience seen in sectors like healthcare, construction, and other in-person occupations. During Q1 FI 2025, the number of job advertisements on Indeed in the U.S., including both paid and unpaid job ads continued to decline, in line with our initial assumptions. Even amid such conditions, while hiring demand from small and medium-sized businesses had shown particular weakness in March and April, we saw the trend in hiring demand among these employers improve late in Q1 as the US economic outlook improved. Amid this environment, revenue in the U.S. increased by 0.9% year-over-year, to $1.26 billion, driven by ongoing development in monetization as the rate of increase in revenue per paid job ads more than offset the rate of decrease in the number of paid job ads. Quarter over quarter, US revenue increased by 6.3% on a US dollar basis, supported in part by typical Q1 seasonality. Revenue in Europe and others, grew by 12.6% to 476 million US dollars, which is a 11.8% increase compared to Q4 FI 2024. In addition to a weaker US dollar, the region benefited from strong performance in the UK, partially driven by a favourable comparison with the prior year. For Japan, this was the first quarter following the integration of HR solutions from matching and solutions. Revenue in Japan was ¥90.2 billion, a 4.4% decrease broadly in line with our initial expectations, including the impact of Indeed Plus revenue on a net basis. Compared to Q4 FI 2024, this represented a decrease of 4.3%. Segment EBITDA plus S for Q1 was 119.4 billion yen, an increase of 1.4%, and segment EBITDA plus S margin increased to 35.0%. Segment EBITDA was 96.3 billion yen, and segment EBITDA margin was 28.2%. As DECO has previously communicated, Our assumption remains unchanged that hiring demand in the U.S. will continue to decline by approximately an additional 10% from the level at the beginning of this fiscal year and is likely to bottom out in the second half of the year. We are operating under the expectation that it will still take some time before job demand fully bottoms out. As for staffing, segment revenue in Q1 decreased by 3.4% to 408.1 billion yen. In Japan, revenue increased by 6.3% to 212.8 billion yen, driven by continued growth in demand for temporary staffing services and an increase in the number of temporary staff on assignment. However, in Europe, US, and Australia, revenue declined by 12.2% to 195.3 billion yen, reflecting ongoing weakness in demand for temporary staffing services amid uncertain economic conditions. Segment EBITDA plus S decreased by 6.2% to 26.8 billion yen, resulting in a segment EBITDA plus S margin of 6.6%. Next, I will discuss the results of marketing matching technologies. The business environment in Japan remained stable, with revenue growth across all three sub-segments. Segment revenue increased by 7.1% to 136.8 billion yen. Revenue in lifestyle, which consists of beauty, travel, dining, and SaaS solutions, increased by 9.7% to 70.1 billion yen. In beauty, revenue increased due to continued growth in new business clients. Revenue in travel increased as the trend of high unit prices for lodging continued due to domestic travel demand during the Golden Week holidays and increased inbound tourism. Revenue in housing and real estate increased 3.7% to 37.5 billion yen, primarily due to higher advertising demand driven by an increase in the supply of existing condominiums. Revenue in others, which includes car and bridle, was ¥29.1 billion, an increase of 5.4%. Segment EBITDA plus S margin expanded 4.9 percentage points to 31.6%, driven by appropriate cost control, principally related to service outsourcing expenses. regarding our capital allocation measures. The 450 billion yen share buyback program, which the Board of Directors resolved on February 28, 2025, was fully completed on June 18, reaching the maximum authorized amount. The total number of shares repurchased was 55.6 million shares. 11.7 million shares were repurchased through two TostNet3 transactions for a total of 98.5 billion yen and 43.8 million shares via market purchases through an appointed securities dealer with transaction discretion for 351.4 billion yen. On March 24, 2025, we retired 85.9 million shares, equivalent to the number of shares repurchased over approximately the preceding year. As of June 30, 2025, total issued shares were 1,563.9 million shares. Of which approximately 4.9% were shares directly held by Recruit Holdings. and 3.7% represented trust holdings allocated for share-based payment expenses. Based on our consolidated earnings guidance disclosed on May 9, 2025, shares repurchased as of June 30 this year, and the total share dividend amount expected in FI 2025, the total payout ratio of this fiscal year is projected to be 84.5%. Consolidated net cash as of June 30, 2025, decreased to 563.5 billion yen, less than half of the amount as of March 31, 2024. We have not changed our target announced in May 2024, to reduce net cash to approximately 600 billion yen over the two years ending March 2026. While considering options for strategic MNA, we will closely monitor changes in the economic and capital market environments, and based on our company's financial outlook, we will assess whether or not to proceed with share repurchases. This concludes my presentation.

Now we would like to proceed to the Q&A session. If anybody has a question, please click on the Zoom raise hand button. Please unmute before asking your question. We will take one question. Goldman Sachs, Munakata-san, please. Thank you for this opportunity. I'm Munakata from Goldman Sachs. So one question. on HR tech, please. In your presentation, you mentioned that you did the workforce reduction. So what was the background to this? including macroeconomic factors, or the internal resource allocation is changing, your policy is changing with the AI. If macroeconomic situation improves, the drastic workforce increase will not happen. Can we expect that? So if you could elaborate, please. Thank you very much. In May, Deco explained this point. how we become more efficient and more productive in our operation, including the environment. And after that, Deku returned as the CEO of Indeed. So HR technology, especially in the US, is, to repeat myself, regardless of the environment, we will take new initiatives one by one. In other words, the new services, great contents that will please our customers who will use our service more so that we can monetize further. So we are in that process and how we leverage the opportunity is the key. As we mentioned in May, Back in May, we had the coding for new service development. I think we said 30%. 30% is already digitalized. And this is making progress. Of course we use external technologies and we pay in some cases but how we reduce our cost, how we maintain our efficiency is the baseline. And under that circumstances, we will try to optimize the number of headcount and decide whether we should increase or reduce the number of people engaging in R&D. So that was the thought process. So of course we will increase the headcount if we need more to increase our revenue, but in the HR technology framework, how we digitalize, introduce the more automation and produce more effectively, efficiently is the key. So sales side is usually the people we need more when we want more revenue. So, how we make our development more efficient. This is not necessarily directly related to revenue increase. But as we already mentioned, this year, US HR technology revenue increase is not expected to increase much. If there is some big change and revenue increases, rapidly, will we recruit, regain all the people that we let go? No, that is not likely, not a high possibility. Thank you very much. So when you develop new services, you will continue pursuing higher efficiency, I understand. One follow-up question, if I may. So you are now improving your monetization steadily. In Q1, HR tech, US revenue on a dollar basis is solid, I think, given the external environment. So in your monetization measures, the unit price increase, you offset the volume decline. So monetization measures, are they on the extension of what you mentioned in Q4 results? Or are there any updates you could share with us? So basically, we are doing things on the extension of what we said in May. Maybe in September in Indeed Future Works, we may be able to say something new or say that we are enriching what we are working on. But basically, we are doing things on the extension of what we've already shared with you. Thank you very much. Thank you.

Next, Ono-san from Nomura Securities, please. Thank you. This is Ono from Nomura Securities for Indeed and plus a management structure. Currently, the basically people who are already on will stay or will there be succession? I would like to understand better about the management structure going forward. I think you are talking about Deko. If that is the case, then currently we are not calling it interim. He himself considers the current period to be crucial period and therefore whether things go successfully or not at this timing will create a huge difference for the company. So he's putting himself close to the field every day, listening to people and making decisions every day. So I don't know what will happen five years, 10 years from now, but for the time being, It's not a temporary structure until we have someone new, but rather we are focused on what we can do today to be successful in the future. I think that's a better understanding of the structure today. What about Glassdoor? As for Glassdoor, in July, we talked about this. It's been some time since the acquisition And fundamentally, they will be integrated more fully with Indeed. And along the process, we will have opportunities to showcase Glassdoor's capabilities and characteristics and make contributions. Thank you. If I may quickly, regarding MMT, For cost management, I have a question. What are some cost items where you see huge room for improvement? Are they mostly outsourcing costs or are there other items? Generally, overall, we will cut costs where we can. Of course, at the same time, we hope to increase revenues. That's our approach. So for certain focus areas, that's been the policy and our approach. What structure should we have for these specific areas that have been identified? We will... have the best structure for each respective field. Looking at the past spending, we will eliminate waste. We will no longer have unnecessary costs. Of course, this is a given, but we will have a more full control over the costs and we will invest where it's necessary and control investments where it is not as crucial. And by taking these measures, as we've been saying since before, we believe this leads to margin improvement together with sales and revenue increases. This is achievable. I see, thank you. Thank you.

So we will wait for the next hand to come up. If you have any questions, please show us your hand. No more questions? Oh, we can end early today. We are trying to be clear, and maybe that is bearing fruit. Yes, so Ono-san from Memorial Securities, your second time, please. Oh, yes, great opportunity. So thank you for giving me the second opportunity. Earlier, you talked about workforce reduction. You mentioned that your automation is progressing. So encoding... Part of your workflow is automated. Aside from that, do you have any other areas that you are making progress? Anything you could share with us? Of course, the internal efficiency I mentioned earlier when I answered the previous question. By utilizing that, we are trying to develop new services. So anywhere, anywhere. We're not trying to reduce people everywhere we can. That's not what we are doing. At one point, After the rebound from COVID, we increased our headcount. And then we had two rounds of reduction. This is the third headcount reduction. Thinking of many factors and trying many things. We thought how we can become a more lean structure and automate and digitalize ourselves. And we're making progress. So we will continue exploring what the best format is for us. In some areas, we may hire. In other areas, we may pursue further automation and digitalization. So I cannot specifically mention what we are doing, this and that. But we will continue thinking of our best format, optimal format. So I cannot mention any particular areas, but our policy remains unchanged. Thank you very much. In the US, AI-related service deployment, what are the necessary pieces, parts for you to do that? So do you just need time for R&D? Is it just a matter of time? Or do you need partnership, collaboration? And including that, you will develop your own resources. How can you come up with a breakthrough AI services? If you are discussing this internally, could you share that with us? We have a two-sided marketplace. we are located in two-sided marketplace. So how the job seekers convenience can be enhanced and how the corporate clients convenience can be enhanced and enhance the matching, enhance the quality of matching and pursue and improve our monetization. So I hope all three parties can enjoy the benefit. That is what we are trying to do. So if one piece is missing, this will not materialize. So how we automate, where and where we should not automate, what we can do, to what extent we are trying and doing trial and error to move forward. So of course, if we can do everything in-house, that's the best. But on the other hand, we may in some cases leverage what other companies have developed. If that is the best, maybe it will be quicker than doing everything by ourselves. So we do not have the initiative of renewing the AI. What we're trying to do is how our service can be utilized more. So... I think the seeds and drivers will come from many areas. We will not do everything, may not do everything by ourselves, but we will not be over-reliant on other parties to come up with the best format. Thank you. Thank you very much.

Thank you. Thank you. Next, Munakata-san from Goldman Sachs Securities, please. This is my second time, thank you. I want to come back to HR tech again. In your presentation in the beginning of this session, perhaps you touched upon this a little bit, but Europe and other regions in terms of top line appear strong to me. So I would like to better understand the background and sustainability of this strong performance at the beginning of the year You said regions besides the US in terms of improvements of monetization, they would be catching up. They would lag behind. So that presents a bigger room for improvements. Is that the contribution we are seeing? What is the background? Yes, you're right. There is a time lag to some extent in our approach. So if you consider the US situation last year, I think it gives you a better image. And also in Europe, countries like the UK, the last year's situation was not so favorable. So this year, Oh, we have been making a recovery and we are seeing good performance. So in terms of improvement or growth that appears higher. So it's not that situation is outstandingly great. It's just that last year things were unfavorable. The launch pad was placed at a lower ground and also the exchange rates in relation to the dollar. This is another factor or contributing to the performance. But as for the business trends, volume, even if it does not recover substantially, we can still compensate through improvements and monetization. And if volume is at the expected level, then we can go for an upside for this year. I see, thank you. As for Japan, for HR tech, still for Japan, I understand this is in line with the expectation, but lately, recently, investors have said that perhaps competitors are gaining share or maybe it is taking longer for the Indeed Plus to penetrate. I have received such questions from investors recently. So honestly, should we be concerned about these matters? What are your views? Any comment on this, please? Yes, in May, what we said was that this year, We are not expecting anything drastic. We will not have any drastic change. Rather, we want to stabilize the new operations. So for next year and the year after that, this is us making preparations for the leap to come in the next year and beyond. So in the meantime, if competitors are increasing their performance if they're doing better. Of course, these are expected. It's possible, but we are not swayed by that. We had separate operations. We are focused on integrating them, facing in the same direction amongst different teams. So those are our focus areas. And of course, we have to do more to become number one. But this year, We are not expecting any outstanding performance. Rather, our focus is to establish stable operations. That is our priority for this year. So we will steadily make efforts to make sure that is realized. And of course, we will make sure we respond to our customers, clients, From the initial year, of course, it would be nice if we have a very robust performance, but these are operations and there are people behind them. We have new people coming in in the field, and it is not easy to have established the stable operations from day one, but we are steering the situation. And after three months, after six months, and at the turn of the year, we expect things to be more stabilized and fully ready to launch. Personally, I am very excited in terms of the operations. I see, it's very clear. So after next fiscal year and beyond, you are making preparations for the future growth and the things are according to plan. I see, thank you very much. Yes, thank you.

Thank you very much. So we will wait for other questioners. So Oiwa-san from Jefferies Securities, please. Thank you very much. This is Oiva from Jefferies. So in SaaS, airpay, the profit contribution is my question. In our case, we have sub-segments, the business, profit, and margin. We have not shown the breakdown from the past. And this time we have the new MMT. This is one new segment. And here, we have no plan of sharing the profit margin of each business. So in SaaS, in our strategic positioning, the area with frequent transactions, for example, lifestyle, lifestyle business. So we are in that area. And so as we have mentioned from the past, how the SaaS business products and services can in travel, for example, in our lifestyle business, or beauty, how it can contribute to these lifestyle business. We hope to provide service that can increase their revenue. So this may be viewed as a cost. So in how to grow the lifestyle business as a whole, is the highest priority that is the positioning of course backed by the economic circumstances this business showed stronger growth in q1 than others and mmt growth was strong so we hope to keep the momentum so that more business clients can use our products and services. So we're not talking about the margin going up or down. Rather than talking about margin per se, we think by doing what we had just mentioned, we can aim for higher revenue. So I think that is the right way, right approach of our SaaS business. Yes, understood. Thank you very much. Now another topic, if I may, or should I step down once? No, please go ahead. Yes. So US Indeed Business. Agency recruiters, wallet share. Are you taking wallet share of agency recruiters? Agency recruiters. Robert Walter. and other players. So yes, the placement. So from other companies, are you taking wallet share from others? Placement business model and Indeed's main area business model are slightly different. So how we make money is different. So it's not that we start the placement business and take the market share of the incumbents. So business clients, what percentage of their business they use for placement and advertisement and how much they use for Indeed. their wallet is allocated. So in the overall wallet, we have some share and other players, other services have other shares and we are competing over the market share. But the way we raise money is different. One is success-based, one is advertisement-based. So Of course we compete to gain customer's wallet, but that is secondary. If customers want to use more money for us, then yes, more money will come to us. And that is the secondary benefit that we expect. But due to the difference in the business model, we are not directly competing with them head on. Understood. Thank you very much. Thank you.

Thank you. Is there anyone else that would like to ask questions? Yes, from Goldman Sachs, please. Sorry, it's me again. Thank you. Regarding capital allocation, I have a question. The net cash level is below 600 billion yen. Initially, by the end of March next year, you were targeting to reach 600 billion. That was an ambitious target, but you are now much ahead of the schedule. Before, when I ask questions, There seem to be certain M&A potential companies that you were considering based on the comments that we received. So again, going forward, what is your approach to share repurchases, M&A? What is the policy on capital allocation? If you could give us updates, I would appreciate that. Yes, as of the end of June, the level was below 600 billion, somewhere in the range of 560 billion yen. And luckily for us, it is not, we are not in an environment where revenue continues to increase steadily, but cash coming from the operations continue to be robust. So the uses of cash Of course, going forward, we will have more cash and deposits to accumulate. Going back to my presentation earlier, by the end of March, we will be in the range close to 600 billion. That's where we would like to land by that time. And of course, if there will be M&As, then of course, there will be a certain spending. But of course, this is contingent on relationships as well as the business environment. So if there are no M&As, of course, if we leave this untouched, then cash and deposits would continue to accumulate towards the end of March, luckily for us. So of course, at any given time, if the business environment is not favorable, then perhaps it's better to have more cash and deposits on hand. That may be a decision to be reached. But if that is not the case, then at some time, maybe it is better to implement the share repurchases programs. So those are our views. But depending on the stock price, If the stock price surges, then do we want to implement share repurchases? That's another discussion. Given the economic situation, the stock price of the company, and also business situations, spending possibilities, where we would like to spend the next year, and also progress in M&As. So there are four or five different factors, different uses of cash, and we will determine the best optimal. And hopefully that will be something that contributes to our future. That's where we would like to spend. So 560 some billion yen, just because we are now below the 600 targeted level. It's not that we can immediately take action. So we will continue to target the range around 600 billion. That's very clear. Thank you. Thank you very much.

Thank you very much. Any other questions? Thank you very much. So as Jun mentioned earlier, we provide an announcement regarding Indeed's events scheduled for next month. Jun, please go ahead. Yes. So we are pleased to announce this year's Indeed Future Works, which is the largest event. This Future Works will be held in New Orleans on September 10th and 11th, US local time with a hybrid format combining both in-person and online participation as in previous years. We will have the talk about Indeed's latest products and existing hiring solutions through detailed product demonstrations, highlighting their practical benefits for corporate recruiters and their recruitment activities. So presentations and demonstrations and exchange of views will be held. So, If you could come to the site, that's great. But if you still would like to listen in, that will also be possible. So if you could register in advance and listen in or listen in person or listen to the recorded audio later on. So you could experience our evolution and progress and the types of services we are planning to offer to our clients and customers. So thank you very much. Thank you very much. We would now like to close. Thank you for joining. Thank you very much.