Members (2130) FY2027 Q1 Earnings Report

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Executive Summary

The first quarter was characterized by revenue growth accompanied by an expansion of the operating loss, with deteriorating profitability being the defining feature of the results. Revenue remained on a growth trajectory at ¥57.5B (¥54.7B in the same period of the previous year, YoY +5.2%), while Operating Income was ¥-4.0B (¥-0.7B in the previous year) and Net Income was ¥-2.5B (¥-0.4B in the previous year), with losses expanding in both cases. The primary factor behind the expansion of losses was the 30.5% YoY increase in SG&A expenses, which substantially outpaced revenue growth.

Factors Affecting Performance

【Revenue】Revenue increased 5.2% YoY to ¥57.5B. The Company operates as a single segment (DX Accompanying Support Services Business), and factors behind segment-level changes have not been disclosed. However, Gross Profit remained at ¥10.6B (¥10.4B in the previous year, +1.4%), while Cost of Sales also increased to ¥46.9B (+6.1%) relative to the revenue growth, resulting in a decline in the gross margin to 18.4% from the previous year.

【Profit and Loss】SG&A expenses increased 30.5% YoY to ¥14.5B, expanding at a pace substantially exceeding the 5.2% revenue growth rate. As a result, the operating margin deteriorated to -6.9% (previous year: -1.3%), and the operating loss expanded from ¥-0.7B in the previous year to ¥-4.0B. Financial income of ¥0.5B partially offset the loss, but Profit Before Tax was ¥-3.5B and Net Income was ¥-2.5B. This was not merely a case of revenue growth accompanied by lower profit; rather, it was a set of results characterized by revenue growth alongside expanding losses in both operating income and net income.

Key Financial Indicators

【Profitability】The operating margin deteriorated to -6.9% (previous year: -1.3%), while the net profit margin deteriorated to -4.4% (previous year: -0.8%). The gross margin declined from the previous year to 18.4%, while the SG&A ratio rose to 25.3% (previous year: 20.3%).【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-1.2B and Free Cash Flow was ¥-1.4B, as the interim total of OCF of ¥2.0B was offset by corporate income tax payments of ¥3.2B, resulting in negative OCF. The fact that OCF did not exceed Net Income is a point to consider when assessing earnings quality.【Investment Efficiency】ROE (annualized) declined significantly to -16.9%, reflecting the operating loss.【Financial Soundness】The Equity Ratio remained broadly at the same level at 51.5% (previous year: 52.0%), while cash and cash equivalents stood at ¥37.4B. Both total assets and net assets declined from the previous year, indicating that retained earnings are being drawn down.

Cash Flow Analysis

OCF was ¥-1.2B, deteriorating from ¥+2.7B in the same period of the previous year, primarily because corporate income tax payments of ¥3.2B were recorded against the pretax subtotal of ¥2.0B. Investing Cash Flow was ¥-0.2B, with capital expenditures remaining limited in scale, resulting in Free Cash Flow of ¥-1.4B. Financing Cash Flow was ¥-5.6B, of which dividend payments of ¥4.1B and lease liability repayments of ¥1.5B were the primary outflows. As a result, cash and cash equivalents decreased by ¥7.0B from ¥44.4B at the beginning of the period to ¥37.4B. The Company remains in a situation where funds generated from operating activities are below dividends and fixed lease payments, and cash was being drawn down as of the first quarter.

Earnings Quality

Financial income of ¥0.5B reduced the pretax loss from an operating loss of ¥4.0B to ¥3.5B; however, financial income amounted to only approximately 0.9% of revenue, indicating that reliance on non-operating income is not high. The difference between the pretax loss of ¥3.5B and the net loss of ¥2.5B was corporate income taxes and other taxes of ¥0.9B, meaning that the tax burden somewhat reduced the loss. OCF was ¥-1.2B, slightly above the net loss of ¥2.5B, but corporate income tax payments of ¥3.2B weighed on OCF, suggesting a decline in recurring cash-generating capacity. Comprehensive income was ¥-2.6B, broadly in line with the net loss of ¥-2.5B, while the impact of the valuation loss on other securities of ¥-0.03B was limited.

Earnings Forecasts and Guidance

The full-year forecast is revenue of ¥268.7B, Operating Income of ¥25.0B (+56.2% compared with the previous fiscal year), and Net Income of ¥17.4B (+43.1% compared with the previous fiscal year), with no revisions to the earnings forecast or dividend forecast. The Q1 progress rate for revenue was 21.4%, slightly below the 25% implied by an evenly distributed progression, while the progress rates for Operating Income and Net Income were negative because both were losses. Achieving the full-year plan will require significant earnings improvement from Q2 onward, accompanied by control of the increase in SG&A expenses and a recovery in the gross margin.

Shareholder Returns

The full-year dividend forecast is ¥35.00 per share, while no dividend was paid in the same period of the previous year. Dividend payments during the first quarter totaled ¥4.1B, exceeding Free Cash Flow of ¥-1.4B for the same period, meaning that dividends were not covered by internally generated funds during the period. Based on the full-year forecast of profit attributable to owners of the parent of ¥17.4B, the forecast Payout Ratio is approximately 25.9%. Share repurchases were ¥0.0B and therefore minimal, with dividends constituting the primary form of shareholder returns. Dividend sustainability depends on the recovery of full-year Operating Income and improvement in OCF.

Risk Factors

1. Deterioration in personnel utilization and project profitability: While revenue increased only 5.2% YoY, SG&A expenses rose 30.5%, and the operating loss expanded to ¥4.0B. In labor-intensive services, changes in utilization rates, project unit prices, and outsourcing expenses affect the ability to absorb fixed costs and therefore represent the highest-priority monitoring items.

2. Free Cash Flow deficit and declining cash: OCF of ¥-1.2B and Free Cash Flow of ¥-1.4B resulted in a ¥7.0B decrease in cash and cash equivalents during the quarter. The cash balance of ¥37.4B and Equity Ratio of 51.5% provide a buffer, but this buffer could decline if losses and dividend payments continue.

3. Insufficient cash coverage of dividends: Dividend payments of ¥4.1B exceeded Free Cash Flow of ¥-1.4B in the first quarter, meaning that dividends were not covered by cash generated during the period. Dividend sustainability depends on the recovery of full-year earnings and OCF.

Industry Benchmark (For Reference; Compiled by the Company)

Key Points from the Financial Results

1. Although revenue growth has continued, the SG&A expense growth rate (+30.5%) substantially exceeded the revenue growth rate (+5.2%), resulting in expanding losses in both operating income and net income. This structural change is the most notable aspect of these results.

2. OCF has continued not to consistently exceed Net Income. The trend in cash-generating capacity, including corporate income tax payments, should be monitored continuously in future financial results.

3. The full-year forecast assumes a significant recovery from the Q1 results, with Operating Income of ¥25.0B and Net Income of ¥17.4B. Given that the forecast has not been revised, progress from Q2 onward will be the key focus in assessing the feasibility of achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥773–¥821 at a ±1% change in the cost of equity, and ¥787–¥811 at a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations for any specific investment action, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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