Image Information (3803) FY2026 Q3 Earnings Report

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Executive Summary

Despite a 25.0% increase in revenue, the key feature of the results was a significant expansion in net loss due to deterioration in the gross profit margin, higher company-wide expenses, and the recognition of impairment losses. Revenue was ¥5.39B (¥4.31B in the same period last year, +25.0%), operating loss was ¥▲1.36B (¥▲0.53B in the same period last year), ordinary loss was ¥▲1.33B (¥▲0.52B in the same period last year), and the quarterly net loss attributable to owners of the parent was ¥2.08B (versus a profit of ¥0.25B in the same period last year). The primary drivers of revenue growth were the expansion of both the IT Solutions and BPO segments, while the decline in the gross profit margin due to a higher cost-of-sales ratio and ¥0.93B in goodwill and software impairment losses were the main causes of the larger loss.

Factors Affecting Results

【Revenue】Revenue increased 25.0% year on year to ¥5.39B. Both segments reported higher revenue, with IT Solutions at ¥4.47B (+28.0% year on year) and BPO & Services at ¥0.92B (+12.3% year on year). IT Solutions is the core business, accounting for 82.9% of the revenue mix.

【Profit and Loss】Cost of sales was ¥5.01B, representing 92.9% of revenue, while gross profit was ¥0.39B, a 49.4% decrease from ¥0.76B in the same period last year. The gross profit margin declined from 17.6% to 7.1%. Selling, general and administrative expenses increased 34.4% year on year to ¥1.75B, resulting in negative operating leverage exceeding the revenue growth rate and an expansion of the operating loss to ¥1.36B (¥0.53B in the same period last year). Ordinary loss was ¥1.33B, broadly at the same level; however, the loss before tax expanded to ¥2.23B following the recognition of ¥0.93B in extraordinary losses (¥0.78B in goodwill impairment and ¥0.15B in software impairment), resulting in a net loss attributable to owners of the parent of ¥2.08B. The results were characterized by higher revenue but lower profit.

Segment Analysis

Segment income was ¥0.27B for IT Solutions, with a margin of 6.0%, and ¥0.12B for BPO & Services, with a margin of 12.6%, for a total of ¥0.39B, remaining profitable. However, the margin of the core IT Solutions business declined sharply from 19.3% in the same period last year to 6.0%, suggesting deterioration in project profitability during a period of revenue growth. BPO & Services maintained a relatively high margin of 12.6%, but its revenue mix remained limited at 17.1%, insufficient to offset the deterioration in IT Solutions profitability. Against total segment income of ¥0.39B, company-wide expenses reached ¥1.75B, the primary cause of the consolidated operating loss of ¥1.36B.

Key Financial Indicators

【Profitability】The operating margin deteriorated significantly to ▲25.2% (▲12.5% in the same period last year), while the net profit margin was ▲38.6%, indicating that profitability worsened substantially despite revenue growth. The gross profit margin was 7.1%, down 1,050bp from 17.6% in the same period last year.【Cash Quality】Cash and deposits of ¥3.00B exceeded current liabilities of ¥1.73B, securing short-term liquidity with a current ratio of 248.6%. Accounts receivable decreased 33.1% to ¥0.80B, easing the cash tied up in receivables collection, while accounts payable increased 28.2% to ¥0.38B.【Investment Efficiency】Annualized ROE was significantly negative at ▲351.0% on a net income basis, with the high leverage resulting from losses and a thin equity base amplifying the loss ratio. Total assets were ¥5.0B, down from ¥6.1B in the same period last year.【Financial Soundness】The equity ratio declined sharply to 17.4% from 46.2% in the same period last year, while net assets decreased 71.8% from ¥3.1B to ¥0.9B. Of total liabilities of ¥4.11B, liabilities related to retirement benefits amounted to ¥1.99B, accounting for 48.3% and representing a significant long-term funding and cost burden.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, cash trends can be inferred from changes in the balance sheet. Cash and deposits increased slightly from ¥2.75B in the same period last year to ¥3.00B, maintaining short-term liquidity. Meanwhile, net assets declined significantly from ¥3.1B to ¥0.9B, indicating that continued operating losses and the recognition of impairment losses have eroded capital. Long-term borrowings increased from ¥0.04B in the same period last year to ¥0.36B, warranting attention as reliance on external financing has increased somewhat amid capital erosion. The decrease in accounts receivable (¥0.40B) contributed to easing the cash tied up in working capital.

Quality of Earnings

Against ordinary loss of ¥1.33B, the loss before tax expanded to ¥2.23B, primarily due to ¥0.93B in extraordinary losses comprising ¥0.78B in goodwill impairment and ¥0.15B in software impairment. Meanwhile, a gain on the recognition of negative goodwill of ¥0.04B arising from the acquisition of a newly consolidated subsidiary was recorded as an extraordinary gain, partially offsetting the extraordinary losses. These impairment losses accounted for 44.7% of the ¥2.08B net loss attributable to owners of the parent and made a substantial contribution to the expansion of the loss as a temporary factor. However, even excluding impairment losses, an operating loss of ¥1.36B and ordinary loss of ¥1.33B remain. Accordingly, the central issue regarding earnings quality is low gross profitability and the burden of fixed costs, including company-wide expenses, rather than temporary losses. Non-operating income was ¥0.03B, less than 5% of revenue, indicating low reliance on non-operating income.

Earnings Forecast and Guidance

Progress toward the full-year revenue forecast of ¥7.68B was 70.3%, slightly below the standard progress rate of 75%. Meanwhile, against the full-year operating loss forecast of ¥1.03B, the cumulative operating loss was ¥1.36B, representing a progress rate of 132.1% and requiring an operating profit of ¥0.33B in Q4. Progress toward the full-year ordinary loss forecast of ¥1.14B was also 116.7%, while progress toward the forecast full-year net loss attributable to owners of the parent of ¥1.75B was 118.9%; in both cases, cumulative losses are exceeding forecasts. Meeting the earnings forecast will be difficult based solely on revenue progress, making a recovery in the gross profit margin and containment of company-wide expenses the key focus.

Shareholder Returns

The dividend for the current period was ¥0 per share, and the full-year dividend forecast is also ¥0, resulting in no dividend. As a quarterly net loss attributable to owners of the parent of ¥2.08B was recorded, there is no profit on which to calculate the payout ratio. Retained earnings declined to negative ¥1.79B and net assets declined to ¥0.87B, making loss containment and the recovery of shareholders’ equity the immediate priorities for capital allocation.

Risk Factors

1. Deterioration in the profitability of the core business: IT Solutions accounts for 82.9% of the revenue mix, while its segment profit margin declined from 19.3% in the same period last year to 6.0%. The gross profit margin also declined 1,050bp year on year to 7.1% company-wide. If cost increases or an unfavorable project mix persist, there is a risk that the profit margin will not recover even with revenue growth.

2. Capital vulnerability: The D/E ratio was 4.73x, while the equity ratio declined to 17.4% from 46.2% in the same period last year. Net assets decreased 71.8% year on year, and financial flexibility could deteriorate rapidly if operating losses continue or additional impairment losses arise.

3. Risk of revaluation of goodwill and intangible assets: Impairment losses of ¥0.78B on goodwill and ¥0.15B on software were recorded. This indicates that the earnings power of M&A and integration businesses, including newly consolidated subsidiaries, fell below expectations, requiring continued monitoring of the earnings contribution from the acquired businesses.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin were significantly below the industry median, placing profitability in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, indicating that top-line growth was relatively strong within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Revenue increased 25.0% year on year, but the gross profit margin declined to 7.1% from 17.6% in the same period last year. Together with the increase in SG&A expenses, this caused the operating loss to expand to ¥1.36B, demonstrating a structure in which revenue growth is not translating into profit growth.

2. Impairment losses totaling ¥0.93B on goodwill and software were recorded. However, the operating deficit continued even excluding these losses, indicating that the challenges in the earnings structure cannot be explained solely by temporary factors.

3. An equity ratio of 17.4%, a D/E ratio of 4.73x, and annualized ROE of ▲351.0% indicate ongoing erosion of the capital base. Achieving the full-year forecast will require an improvement in the gross profit margin and containment of company-wide expenses in Q4.

Theoretical Share Price (Reference Value)

Sensitivity: -¥43 to -¥42 at cost of equity ±1%, and -¥43 to -¥43 at ω±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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

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