Welcome to the Recruit Holdings Q2 FY 2023 earnings conference call. This call is a simultaneous translation of the original call in Japanese, and translation is provided for the convenience of investors only. I am Mizuho Shen, Group Manager of Investor Relations and Public Relations, and joining me today is Junichi Arai, Executive Officer of the Corporate Planning Division. The first quarter financial results presentation video and its transcript were uploaded to the IR website at 3:00 P.M. today, so all 50 minutes of today's session will be used as a Q&A session. This time, we've decided to start the call at 4:00 P.M., which is one hour earlier than in the past. This change is intended to speed up the process of uploading the Japanese and English transcripts of the call for the benefit of global investors. Thank you very much, and I appreciate your attendance today. We uploaded the IR website, the transcript at 3:00 P.M. today, and so I think you have seen it already. Let me briefly summarize. So for the consolidated full year outlook, the numbers will still be not disclosed because market environment is still unforeseeable. Many things could happen, so we will not disclose the outlook. On the other hand, in the financial results briefing in May, we said we expect both revenues and profit to decline. Revenue decline will remain unchanged, but the Adjusted EBITDA will be a slight decline or flat, and the net profit, unless some one-off and extraordinary losses are incurred in the fourth quarter, we will keep the net profit unchanged. And the segment views were also expressed, but HR Technology full year outlook will not be disclosed because it's still unforeseeable. But when I and Idekoba-san talked in May, if the U.S. dollar bases fall 20%, what will the margin be? We said, "Probably mid-twenties margin can be possible," we said. But we have tight cost control, and the result is shown in the first half results. So given the second half outlook, the mid will be more like upper twenties than mid-twenties, so we are changing our forecast to that. But to repeat myself, we're not saying that the revenue forecast is -20%. Even if something happens and the fourth quarter results plunge, we can generate that level of profit. So let me repeat that message. And in the short term, second quarter results we just announced, and the each segment outlook and the consolidated outlook were shared with you for the third quarter. Now, as we continue our dialogue, Matching & Solutions and Marketing Solutions revenue, the disclosure was not done for a long time, but on a biannual basis, we will now give the revenue breakdown in line with our business strategy. So that is one special item this time. So we shared that information with you one hour ago. Including each topic, we will be happy to answer your questions. Shen-san? First of all, UBS Securities, Fukuyama-san, please go ahead. I believe I'm unmuted now. Can you hear my voice? Yes, we can. Thank you. Thank you, as always, and, we really appreciate reconsidering, the disclosures. So one question from me is related to the change in the pricing model of Indeed. After six months, especially in the U.S., how much, has it penetrated? And, regarding your, customers who has, who have switched to a new pricing model, has there been any changes to how they, consume their budget? Thank you. Thank you for your question. Penetration-wise, as we mentioned previously- W e believe it has been progressing steadily, especially for existing customers. And in terms of the pace of consuming budget, well, we have been making multiple changes, so we cannot give you any uniform answer. But if you look at our revenue situation, of course, there are economic drivers, but as we described, there are multiple factors for paid job numbers to change. But as we mentioned previously, short-term revenue is not something we're going after by increasing the unit price significantly. The same budget with the same impact or larger impact is something we are trying to offer to our customers with this strategy. We are offering incremental value, and once it is promoted and understood, revenue would be somewhat neutral. It would not decline, and I would describe it as a very smooth transition. Thank you. Regarding the unit price for a job, it has not decreased. Is that the correct understanding? I believe it was in the FAQ or in my script, but we have revisited our minimum budget. And, as Fukuyama san said, there is overall a positive impact. This is not only coming from the impact of PPSA, but it has been progressing smoothly. Thank you. That was encouraging. Thank you. Goldman Sachs Securities, Munakata-san, please. This is Munakata from Goldman Sachs. Thank you very much. I have two questions, so should I go one by one? Oh, you can say two questions first. First, they're both on HR Tech. First is on your first minimum budget. I don't really understand your intention, so I'm sorry to ask you the basics, but what is the advantage for the clients? And my second question is also on HR Tech third quarter outlook. YoY U.S. dollar basis, 18% revenue decline, and Q o Q, also revenue decline. And operating expenses in yen amount is about the same as Q2, you said, in terms of amount. Q3 margin will decline against Q2, maybe because of seasonality or any planned investment? Thank you very much. Thank you for the question. So let me answer your second question first, - 9% QoQ, and - 8% YoY. And as I mentioned, in October, YoY - 18%. So these are the numbers we presented. And the expenses, as I mentioned at the outset, we are controlling stringently, and so flat, including natural churn, negative, slight negative on that basis. Margin forecast is 27%. But given the October status, we're seeing around 27%, but... but we think the 27% is a bit conservative for us. So some new measures or things we have not communicated with you, or new investment, it's not that we are expecting any new investments or other costs that we have not communicated to you. So did I answer your second question? Yes. Thank you. So to your first question about the minimum budget. So when the minimum or lower floor is set lower, it, the result will not be produced. It does not mean Indeed is not functioning properly. It means that the budget setting is not appropriate. So per job, by setting minimum budget per job, the expectation and the outcome will be more aligned, and more desirable outcome will be produced... and we know that that will be the case. That's why we are setting this minimum budget. So the clients who pay the money are receiving this positively. I see. So you will visualize the appropriateness of the budget setting. I understand, thank you. So of course, $25 will be around that level, $20-$25. But, clients can choose not to pay this and just be a free client, and such clients will have the return from not paying. So if their return may be that much lower. So the return on what you pay will become clearer, more visualized. I understand. Thank you. BofA Securities, Nagao-san, please? I'm sure Nagao san will ask questions about the pie chart. Up to how many questions may I ask? My name is Nagao of BofA Securities. Up to two questions at a time. Understood. Then my first question is on Matching & Solutions. The third quarter outlook, I would like to know your view. Well, when we look at Matching & Solutions from a slightly different view, the third quarter is dining, beauty, travel. Considering their seasonality, I can imagine that the revenue could be pretty sizable in this quarter. The margin is planned at 23%. As the revenue grows, margin could expand proportionately. What is the context of setting 23% as the margin outlook? That is my first question. Thank you. Thank you. We are also looking at the past numbers, but the margin is slightly high in the third quarter. However, there isn't a significant difference over the past two years. Of course, it could be much lower in the following quarters, but it doesn't necessarily mean that we have exceptionally high margin in the third quarter. For example, in 2019, pre-COVID, the first quarter was 26.8%, the third quarter is 27.4%. Last year, the first quarter was 17.4%, third quarter was 16.5%. The second quarter is slightly lower, but there is no significant dip or jump. So 23% doesn't imply anything, but it's just what we naturally reached. Understood. Thank you. My second question is on the pie chart, page nine. Thank you. Thank you for that question. So it's on page nine. Well, I would like to make some basic clarification. This dark blue, beauty, travel, dining, and SaaS Solutions all together, can I assume that there are specific revenue figures, and this is a sum? Yes. Okay. Then, extracting SaaS Solutions alone, may not be your intention, but, can I assume that it will be around JPY 10 billion in size? Well, at least that is the result of the subtraction. And can I assume that SaaS Solutions business is now a meaningful size? In other areas, we are fortunate to have sizable businesses. So what is sizable? That is a different question, but, I can understand your impression as a result of the subtraction exercise you've done. I see. The revenue of SaaS Solutions is clearer now, so I really appreciate this disclosure. Thank you very much. I will ask another question later. Citigroup Securities, Junko Yamamura san, please. Hello, this is Citigroup Securities, Yamamura speaking. Thank you. I have two questions. First is HR tech. North America and non-North America, status is my first question. Looking at your numbers, North American weakness is supported by the regions outside of North America's strength. Is this COVID? Does PPSA pre-penetration or the minimum budget setting, does that have an impact? Could you elaborate? That's my first question. Second question is: in the past, Indeed and M&S resource was consolidated, and the advertisement office was unified to utilize the system to have the advertisement in the right media more efficiently. In U.S. Indeed office, do you have plans to integrate U.S. Indeed office with Japan or not? And any upfront investment this fiscal year? Thank you very much. Thank you for the question. So let me answer your second question first. So the full year business direction, the view, at that point, upfront investment was not considered, like you said, Yamamura san. Of course, we have many plans, but we do not have a full year plan that includes your point. There are many possibilities, so we cannot clearly say, "This is not included, this is included," but we are thinking of the most possible, most promising measures for our business, and the biggest contributor to better business efficiency. So we're thinking of various measures, and trying to judge whether it works or not as we move forward. So it's not that something will happen today or tomorrow, but as you rightly said, we will continue pursuing a more productive, efficient, better job for our clients. So that was your second question. To your first question, our market... Compared to our market share in the U.S., of the other overseas, businesses, there are some countries where, our competitors are very strong. Europe environment is as difficult as the U.S. But there's still big room for growth, so there are some European countries, many countries in Europe, where we are acquiring market share. Now, on a dollar basis and local currency basis, the situation is different, and we look at both. So in some case, overseas business, on a local currency basis, may, seem stronger, and revenue may be growing more, and so, it seems more flat. Understood. Does this answer your question? Thank you. So we want to talk more about individual non-U.S. countries. It will be clearer, but because dollar is strong, non-U.S. business is like this, and we like it. We like how things are. Thank you. Mizuho Securities, Kishimoto-san, please go ahead. This is Kishimoto speaking. Thank you for your explanation. I have one big question. Within our matching and solutions, I have a question about HR Solutions. So according to the financial results, I saw the comments there, and in terms of attributes or industries, can you give us any colors on the hiring situation of the companies recently? In the third quarter, 2% growth is projected for HR Solutions, and in the second quarter, some clients were hesitant to hire, and maybe such clients are expected to increase, or is it going to be a high hurdle to achieve year-over-year growth? So what is the assumption for the momentum change from the third to the fourth quarter? That's my big question. Thank you for your question. As we explained, for the second quarter, we initially explained the revenue projection, and the result is slightly lower than that. And the third quarter is around 2% growth is being projected. So in terms of growth rate, it is more moderate. That's what the numbers tell you. Some clients are cautious, but other clients are active on the job board. A re they going to post ads or, are they going to go to, placement service? And what is the category the clients are looking for? That makes a lot of difference, and the future is unclear. But the type of programming or engineers will continue to have high demand regardless of the industry or the type of clients. And of course, service business demand will continue to be high. On the other hand, manufacturing may be weaker. So depending on the industry, it's true that there are differences in colors, so to speak. But job-wise, there is a strong demand, so it's a mixture. Understood. Thank you. So toward the fourth quarter, do you think this trend is going to continue? I'm sorry, I'm asking about the future. Well, because of the given situation, a full year projection is less than what we originally disclosed. So I would like to make my decision by subtracting between fourth and the third quarter. Macquarie Securities, Tanioka-san? Thank you. This is Tanioka from Macquarie. Thank you. I have one question: HR tech. Sorry if you already explained this, but you've been doing good cost control in in HR, in talents and the advertisement. And in the full year comment by Deko-san, even if the underlying basis changes, you can achieve a higher 20% margin. But if the top line does not drop that much, you've frozen the hiring and took other measures, will you resume those measures? And if you resume your hiring, what will be the trigger? Thank you. In May results call or in February, Idekoba-san said that the difficult situation will continue for around one year, more than one year, and that is the case this year. So what will happen next year, calendar year 2024? So I think that is what your question is coming from. So it's not just the fourth quarter numbers, but beyond that, we are trying to cautiously ascertain the outlook to communicate to you. As of today, the economy does not seem to turn upward and lead to strong demand, so even if the fourth quarter revenue becomes stronger than we anticipate, it will not be a substantial uptick. So for now, we will use our money to where we need to and prepare for the next upturn. Our behavior, our view remains unchanged, so we don't know what the revenue will look like in the fourth quarter, but a short-term margin, whether it hits 30% or 35%, we will keep that behavior in running our business. So if that happens, we don't know when it will happen, but if we can clearly see the bottom, we may take such action. But we don't know where the bottom will be, so we're not thinking of such action yet. Thank you. Thank you. CLSA Securities, Kato-san, please go ahead. This is Kato speaking. Can you hear my voice? Yes, hello. Hello. So I also have a question on HR Technology. In this, the third quarter, -18% is projected. In the second quarter, it's the same, and also the same for October. So, in November and December, I think the projection is also the same. And, last year's hurdle is going to be lower, and is that the assumption or PPSA contribution is expected to be more, resulting in 18%, -18%? What is the assumption here? As I responded earlier, pricing model change is neutral. That is the basic assumption. Supply and demand imbalance is going to ease, and the economic situation continues to be tough. These are the two main factors. Understand. And the bottom- what is the KPI for you? Job openings maybe increase for three consecutive months. What is the KPI for you? Well, macro economic indicators are something we're focusing on, as well as the Deko business on. We are looking at those indicators to paint a picture of the future, so there is no one magic indicator that we are focusing on. It is a combination of multiple factors that we take into account. Of course, we have internal data, and we also have public indicators like JOLTS. As Kato-san said, how much job openings are increasing or decreasing, what is the trend? These are also something we pay our attention to. What is difficult is what is the trigger for our clients to think about restarting hiring? There may be a gap with the actual economic situation. Maybe some people will make a leap, or some people are more cautious. So it's a very difficult decision, but we're referring to basically the same indicators that you would look at. It's not something automatic, for example, if it increases for how many months, it's good. Understand. So in terms of the number of paid job ads, I think it was 50%, - 50% for the second quarter. But how should we look at this in the fourth quarter? Well, I think it was a question from Munakata-san that I responded to earlier. We have been carrying out those measures, so the drop or change of paid job as volume is no longer relevant to our revenue trend. So in my script earlier, we mentioned that we're no longer going to be disclosing that information, so I recommend that you shouldn't rely too much on that number. And going back to the original topic, the number of job posting is a data for us to know what companies are starting to think according to Idekoba- san. Thank you. That's all for me. SMBC Nikko Securities, Maeda-san, please. Maeda-san, please. Hello. Thank you very much. So my question is on HR Tech. Like you said earlier, it will take some time for it to normalize, and The speed towards normalization seems to be mild. It is not plunging or declining rapidly, so it may take some time towards normalization. It may linger, may take a long time. So next year, if the top line does not bottom out, how much cost control can you do next year? You started reducing cost from last year, so it may be more difficult for you to control your costs further. So if you have an image, so if your view on the time it requires for normalization and your cost control measures. Thank you. Normalization, meaning the supply-demand balance? Yes. Supply-demand tightness. From the extraordinarily tight supply-demand, it is now relaxing, so thank you very much. Next year, the economy will turn upward, and the hiring will progress. No, that is not realistic. That is not the view we have at this point in time. So I think you know better than me, will we see a hard landing, or a deep dive, or a slow decline, or a shallow bottom, but linger for a long time? We're thinking of all these scenarios as we consider our next step, and I think you are too, and we are too. But like I mentioned earlier, we don't know when the timing will be, but when the market recovers, we need to become stronger and bigger. So that is our only focus, to become stronger when the market recovers next. So no matter how long or shallow or deep it is, we are doing what we need to do.... As we mentioned in May this year, we need to keep our discipline as a listed company and demonstrate, carry out and demonstrate what we are doing to the capital markets participants. We must do what we need to do, but there are things we can do in the short term and other things. We have to hit the right balance. Like we said last time, the assets and the talents that will contribute to our future growth, we will invest there without hesitation. Of course, we have the short-term view, but the biggest focus is how to grow when the economy recovers. That is the sole focus, and so whether the time is long or short, we will do what we need to do. We will not do what we should not do. We will not push ourselves too much to control our costs. Thank you. This may be a similar question, but until that time comes, you will control costs further? And if the environment deteriorates, you will keep the discipline as a listed company, you said, so you will keep the margin at a certain level? Like I say, every time, we do not take certain steps to keep the margin at a certain level every quarter, but on the same time, we have a margin level that we have to keep as a listed company, so we have that perspective too. But it's not that we will do everything to keep that. I understand. Thank you. Thank you. BofA Securities, Nagao-san, please go ahead. This is my second turn. For the Matching and Solutions business, I have a question about your view regarding the margin in this segment. In the second quarter, in Marketing Solutions, EBITDA margin is approximately 30%, and for HR Solutions, it's approximately 23%, both for the second quarter. Last year, on a full year basis, it was 25%... around 25% for Marketing Solutions, so the margin has significantly improved for Marketing Solutions. What is the driver here? And for HR Solutions, the margin in the second quarter was 23%, and last year, on a full year basis, it was 12%, so this is again a significant improvement. I believe this is not only coming from cost reduction, but also due to revenue growth resulting in margin improvement. For both of the businesses, what is the mechanism for this margin improvement? What is the most recent situation? Thank you. The revenue mix has been changing, for one thing. For each of the subdivisions, for example, in HR Solutions, we have media and a placement service. The revenue breakdown is not disclosed, so I cannot explain what is the mechanism of the margin growth there, and I can say the same for Marketing Solutions side as well. But I hope you will remember that back in May, or even before that, we described last year we had strategic investment in Matching and Solutions. For that year, we didn't really mention the specifics of this investment, but in this May, I think you learned that more investments were made in HR Solutions, but we are not going to be making the same level of investment this year. I think that was what we explained back in May. In HR Solutions, there is a difference in how we spend money, and of course, in Marketing Solutions, we are using less money for investments here. Last year, in this segment as a whole, 14.5% was the EBITDA margin, but this year, it's 20%, overall, that is the target. Nagao-san mentioned, as you mentioned, in the first half, Marketing Solutions will be around 30%, and HR Solutions will be 23% for the first half. That is the level of the margin... and there is the headquarters cost, and when we deduct that, the overall margin will be around 22%. So when we take into account the headquarters cost, there is a certain level of performance we need to achieve in order to realize 22%, so we have to control our spending. On the business side, we scrutinize the need for hiring so that we can achieve a 20% margin on a full year basis. Thank you. One follow-up: in the past disclosures, the EBITDA for Marketing Solutions was around 27% at maximum, but the first half has finished, and it's already around 30%, so the cost is being controlled, and revenue mix is improving. You have been working on the SaaS Solutions business, and can I assume that its profitability improvement is also contributing here? Can you give us some more colors, as much as possible? Thank you. When we disclosed in the past, the cost allocation has been changed quite a bit from what we disclosed just before we stopped disclosing. You cannot compare the margin at that timing apple-to-apple with the current margin. Well, we had our headquarters cost allocated, but to only a small degree. That's what was happening in the past. The headquarters cost was smaller than what we have today, so one of the answers will be it's not an apple to apple comparison. But still, we are taking various measures so that we can come closer to that level. Well, we should be disclosing the margin on a consistent basis so that you can make a fair comparison, but that is not the case. So what we are presenting today would be lower based on the previous basis. I understand. I'm sorry I cannot give you specific numbers, but I just wanted to tell you that it's not safe to make a simple comparison. So next question will be the last one. JP Morgan Securities, Mori-san, please. Mori-san, thank you. I thought you were absent today. No, thank you. I was not ready yet for... Sorry. I have two questions. First is, on a consolidated basis, the advertisement expenses. First half was around JPY 40 billion down. In usual years, you invest more in the fourth quarter, so second half tends to be bigger than the first half. But last year, because of Indeed, I'm looking at first and second half, second half was smaller. This year, will be the usual year, second half bigger than the first half. In that case, on a YoY basis, the advertisement expenses decline will not be the case, will not decline that much. So if you could elaborate. This year, do you have any particular focus in your advertisement expenses? Last year, direct recruiting service was a focus. Do you have any particular focus this year in your investment? That's my first question. For Japan, this year, we are not investing with a particular focus. Because we don't have any focus, like I said, answered Nagao's question, margin is improving. So that is my short, straightforward answer. Second half, as we mentioned, for Japan business, we think it's most effective to invest in the Japan business like we do every year, so it may not be like last year. Like usual years, we will have bigger investment in the fourth quarter. I am not looking at these numbers on a consolidated basis, but I only look at it on a segment basis, so it's just a simple addition, but I'm not so sure about the consolidated numbers. In first and second half, Matching and Solutions business in Japan has the biggest difference. Matching and Solutions Japan will have bigger second half than first half. Thank you. Thank you very much. Matching and Solutions- You are looking at the current margin in third quarter, 23%. Let me add this up and multiply by the revenue percentage and margin, 20%. So you can calculate the fourth quarter margin from the full year forecast. So that is the amount we plan to use. Yes, indeed, the operating expenses is stable, maybe some increase with FX. But so in advertisement expenses, there are not that many swing factors. This year, not much increase or decrease from quarter to quarter. Right, we have discipline. We are investing in a disciplined manner. So the HR is being controlled, and this is also being controlled. Because of this economy, the return on the advertisement expenses may not be big, and so we naturally reduce the advertisement expenses. Thank you. My second question is a big theme. Indeed FutureWorks. You talk about AI a lot. So there are things you've done from the past and the new product that you launch in spring. HR tech, AI utilization, when we think of this as a one big theme, it is used to improve the service or the new product that will be launched next spring? Will this be for the additional added value, ask the clients to pay the usage fee for added value? Is it for higher usability, or by using AI, can you increase TAM? If you could share with us your rough view. As you rightly said, we... By offering better service to the users and the business clients, we can enjoy higher profit in the long run. So that is what we are doing, through various trials and errors. We have done many things and analyzed the numbers, but language, if we can understand the language, we will understand more how to evolve and improve the services. So if it's just feeding in numbers and analyzing it... Yesterday, Idekoba-san and I talked about how much more we can do with AI. So I hope Idekoba-san and you can have such discussion in the future. We can do more things, more new things, going forward. This HR hiring business, the personnel cost ratio is high in the total cost because the business was done by people manually. People matched the hiring, and to increase sales, we needed more people. So it was a high personnel cost business. We needed more people for higher revenue, but higher, more convenience will be more productivity for us. So the lagging industries will have higher potential. And maybe the advanced industries may not have much room for improvement. So because there are, it used to be slow or lagging behind, we can do more, and that's what we are talking, Idekoba-san and I. It is a very promising discussion from business development people, and like we announced yesterday, we want to do many things. It's very exciting. So to answer your question, the investment in this area is, despite the good or bad economic times, we have to do, we have to invest no matter what. We have the strong commitment, because we think we are the only one who can do this in the HR industry, and for a brighter future. I hope we can share with you some more specifics in the future. Thank you very much. I look forward to it. Thank you. Last but not least, let me announce an upcoming IR event. Coming Friday, December 15th at 8:00 A.M. JST, Svenja Gudell, Indeed Chief Economist and the head of the Indeed Hiring Lab, will host a webinar session to discuss global labor market trends. The event will last approximately one hour, with a presentation followed by a Q&A session. Details about this event will be posted on our IR site tomorrow. We hope that you can attend this event and take advantage of this opportunity. Thank you.