MEDLEY (4480) FY2026 Q1 Earnings Report

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Executive Summary

While Revenue continued to achieve high growth of +25.2% YoY, consolidated earnings remained near the breakeven point, making monetization during the revenue growth phase a key challenge going forward. Revenue was ¥101.9B (¥81.4B in the previous year, +25.2%), Operating Income was negative ¥0.7B (negative ¥1.2B in the previous year), Ordinary Income was ¥0.6B (¥0.1B in the previous year, YoY +1120.0%), and Net Income was negative ¥0.6B (negative ¥0.8B in the previous year). Although the operating loss improved from the previous year, Ordinary Income was substantially supported by net non-operating income. Due to the recognition of an extraordinary loss of ¥0.5B and an income tax burden of ¥0.8B, net earnings remained negative.

Factors Affecting Earnings

【Revenue】Revenue was ¥101.9B, representing an increase of +25.2% YoY. The core RecruitmentPlatform generated ¥70.3B (+27.7%), accounting for 69.0% of consolidated Revenue and driving growth, while MedicalPlatform also increased Revenue to ¥28.9B (+26.3%). Meanwhile, NewBusinessDevelopmentServices declined to ¥2.7B (-22.2%), indicating uneven growth across the portfolio.

【Earnings】Operating Income was negative ¥0.7B, improving from negative ¥1.2B in the previous year. Cost of sales increased by +38.0% to ¥45.8B, exceeding the Revenue growth rate, and the gross profit margin declined to 55.0% from 59.2% in the previous year. Meanwhile, SG&A expenses increased by +14.8%, remaining below the pace of Revenue growth, and the operating margin improved by approximately 80bp to negative 0.7% from negative 1.5% in the previous year. Ordinary Income turned positive at ¥0.6B as non-operating income of ¥2.1B offset the operating loss. However, due to the recognition of an extraordinary loss of ¥0.5B (including losses on the disposal and sale of fixed assets), Profit Before Tax was limited to ¥0.1B, while income taxes and other taxes of ¥0.8B exceeded this amount, resulting in Net Income of negative ¥0.6B. By segment, RecruitmentPlatform maintained high profitability with Operating Income of ¥1.71B and a margin of 24.3%, while MedicalPlatform deteriorated to an operating loss of ¥0.17B (compared with Operating Income of ¥1.97B in the previous year). NewBusinessDevelopmentServices also recorded an operating loss of ¥0.16B. Thus, the earnings of the core businesses are being offset by losses in non-core businesses and company-wide common expenses (adjustment of negative ¥1.44B). In summary, the Company is in a phase of higher Revenue but lower earnings, with the consolidated loss continuing despite an improvement in the operating loss.

Segment Analysis

RecruitmentPlatform (Revenue of ¥70.3B, composition ratio of 69.0%) recorded Operating Income of ¥1.71B and a margin of 24.3%, representing an increase in profit of +28.4% YoY and serving as the core of consolidated earnings. MedicalPlatform (Revenue of ¥28.9B, composition ratio of 28.4%) increased Revenue but fell into an operating loss of ¥0.17B, as the burden of M&A integration pressured profitability. NewBusinessDevelopmentServices (Revenue of ¥2.7B, composition ratio of 2.6%) experienced both a Revenue decline and an operating loss margin of negative 61.3%, with the businesses still in the development stage diluting the consolidated profit margin. Adjustments for company-wide common expenses and other items amounted to negative ¥1.44B, representing a significant obstacle to converting the core businesses’ profits into consolidated earnings.

Key Financial Indicators

【Profitability】The operating margin improved to negative 0.7% from negative 1.5% in the previous year, but the gross profit margin declined by 420bp to 55.0% from 59.2%, with rising costs partially offsetting the monetization of Revenue growth.【Cash Flow Quality】Income taxes and other taxes of ¥0.8B were recorded against Profit Before Tax of ¥0.1B, resulting in an extremely high effective tax rate and amplified volatility due to the low earnings denominator.【Investment Efficiency】Annualized ROE was negative 1.9% and annualized ROIC was negative 0.8%, indicating that both asset efficiency and equity capital efficiency were below the cost of capital.【Financial Soundness】The Equity Ratio declined to 29.9% from 35.9% in the previous year. Interest-bearing debt was ¥152.4B, goodwill of ¥129.2B represented 99.0% of net assets of ¥130.6B, and intangible fixed assets of ¥231.3B amounted to 52.9% of total assets, indicating a high degree of debt dependence in the capital structure and concentration in intangible assets.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, changes in the balance sheet indicate that cash and deposits increased by ¥24.2B YoY (+28.2%) to ¥109.9B, improving on-hand liquidity. Inventories declined by ¥3.0B YoY (-33.0%), reducing the amount of funds tied up in inventory. Meanwhile, long-term borrowings increased by ¥29.4B YoY to ¥152.4B, suggesting that funding needs associated with business expansion and M&A were financed through borrowings. While net assets decreased by ¥17.4B YoY, total assets increased by ¥24.3B, indicating that asset expansion was primarily supported by debt financing, a key characteristic of the Company’s funding trends.

Quality of Earnings

Ordinary Income of ¥0.6B was secured because non-operating income of ¥2.1B exceeded the operating loss of ¥0.7B, indicating a high degree of reliance on non-operating income and expenses rather than the profitability of operating activities themselves. The extraordinary loss of ¥0.5B (including losses on the disposal and sale of fixed assets) pressured Profit Before Tax as a temporary factor. In addition, income taxes and other taxes of ¥0.8B were recorded against Profit Before Tax of ¥0.1B, resulting in an extremely high effective tax rate and causing net earnings to turn negative. This fluctuation in the tax burden was amplified because it was measured against a low level of Profit Before Tax, and it would not be appropriate to interpret the current-period effective tax rate as a normal tax burden level. Comprehensive income was negative ¥0.6B, approximately in line with Net Income attributable to owners of the parent of negative ¥0.6B. The impact of other comprehensive income items, such as foreign currency translation adjustments, was limited, and the divergence between Net Income and comprehensive income was minimal.

Earnings Forecasts and Guidance

The full-year plan calls for Revenue of ¥464.0B (+26.1%), Operating Income of ¥29.5B (+37.2%), and Ordinary Income of ¥32.5B (+47.6%), with no revisions to the earnings forecasts. The Q1 Revenue progress rate was 22.0%, below the standard 25%. Given the Q1 operating loss of ¥0.7B, the Company must achieve Operating Income of ¥30.2B and required Revenue of ¥362.1B over the remaining three quarters. This requires an operating margin of approximately 8.3% over the remaining period, making a significant improvement from the Q1 actual operating margin of negative 0.7% a prerequisite for achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥0 per share, with no revision to the dividend forecast. The Payout Ratio is effectively 0%. Treasury shares increased by ¥1.68B YoY, but the acquisition amount of treasury shares during the current period and the Total Return Ratio cannot be calculated based solely on balance information. Given that net assets have declined YoY and the D/E ratio remains high, the current capital allocation appears to prioritize business integration and debt management over shareholder returns.

Risk Factors

1. Leverage and financial soundness risk: The Equity Ratio declined to 29.9% from 35.9% in the previous year, while net assets remained at ¥130.6B against interest-bearing debt of ¥152.4B. As the Company recorded an operating loss against interest expense of ¥0.5B, it is unable to sufficiently cover interest through Operating Income.

2. Goodwill and intangible asset concentration risk: Goodwill of ¥129.2B represents 99.0% of net assets, while intangible fixed assets of ¥231.3B account for 52.9% of total assets. If the monetization of acquired businesses, such as MedicalPlatform’s deterioration into an operating loss, falls below plan, the possibility of future impairment in addition to amortization expenses could affect financial indicators.

3. Inter-segment earnings variability risk: While RecruitmentPlatform is highly profitable with an operating margin of 24.3%, MedicalPlatform recorded an operating loss of ¥0.17B and NewBusinessDevelopmentServices also recorded an operating loss of ¥0.16B (Revenue declined by -22.2%), with the profitability of non-core businesses weighing on consolidated earnings.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is significantly below the industry median and ranks low within the industry.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median and is at a high level within the industry.

※Source: Based on Company research

Key Takeaways from the Earnings Results

1. The core RecruitmentPlatform maintained high profitability, with an operating margin of 24.3% and profit growth of +28.4%, serving as the central earnings source for consolidated growth. However, losses in MedicalPlatform and NewBusinessDevelopmentServices continue to prevent the conversion of consolidated growth into profits.

2. Against the full-year Operating Income plan of ¥29.5B, the Company recorded an operating loss of ¥0.7B in Q1. The required operating margin over the remaining period is approximately 8.3%, requiring a significant improvement from the Q1 actual result. Progress in the coming quarters will be an important point of observation in assessing the feasibility of the plan.

3. The high leverage indicated by the asset composition of goodwill of ¥129.2B and intangible fixed assets of ¥231.3B, together with the decline in the Equity Ratio to 29.9%, highlights the balance between integration progress and capital discipline as an important earnings-report focus behind the M&A-driven growth strategy.

Theoretical Share Price (Reference Value)

Sensitivity: ¥478–¥508 for a ±1% change in the cost of equity, and ¥491–¥495 for a change of ±0.1 in ω.

Notes:

• The ratio of goodwill to net assets is high, and the assumptions would change substantially if impairment were recognized.
• Net assets as of the end of the quarter are used, resulting in a time-period mismatch with the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat high.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 summary data. It does not recommend investment in any specific securities. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. You should make investment decisions at your own responsibility and, as necessary, consult with a professional advisor before doing so.

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AI Financial Analysis

Executive Summary

Medley delivered strong top-line growth in FY2026 Q1, but remained loss-making at the operating and net-income levels as acquisition-related balance-sheet leverage and central costs continued to weigh on returns. Revenue rose 25.2% year on year to ¥10.19bn. Gross profit increased 16.3% to ¥5.60bn. The gross margin declined by approximately 420 basis points year on year to 55.0%, indicating that revenue growth carried a lower gross-profit conversion rate than in the prior-year quarter. SG&A increased 14.8% to ¥5.67bn, slower than revenue growth. Consequently, the SG&A-to-sales ratio improved by roughly 500 basis points to 55.7%. Operating loss narrowed to ¥67m from ¥121m, and the operating margin improved by approximately 80 basis points to negative 0.7%. Ordinary income improved substantially to ¥61m from ¥5m because non-operating income of ¥213m more than offset the operating loss and non-operating expenses. However, profit before tax fell to ¥13m from ¥207m because the prior-year period included ¥204m of extraordinary income, whereas the current period recorded a ¥48m extraordinary loss. Net loss narrowed to ¥62m from ¥75m, with basic EPS improving to negative ¥2.08 from negative ¥2.34. The tax expense of ¥76m exceeded the small pre-tax profit, producing an unusually high effective tax rate of 584.6%; this is a denominator effect rather than a meaningful indication of normalized taxation. The Human Resources Platform was the earnings engine, generating ¥7.03bn of revenue and ¥1.71bn of segment profit. In contrast, the Medical Platform moved to a ¥168m segment loss despite revenue growth, while New Development Services remained loss-making. Aggregate segment profit was broadly flat at ¥1.38bn, and unallocated corporate costs of ¥1.44bn absorbed virtually all segment-level earnings. The balance sheet is heavily shaped by acquired goodwill and other intangibles, which together account for 82.5% of total assets. Long-term loans increased, while equity fell, taking reported D/E to 2.35x and reducing financial flexibility. Management maintained its full-year guidance, but Q1 revenue progress of 22.0% is modestly below the standard 25% quarterly run rate and Q1 operating income remains far below the full-year profit target. The principal forward implication is that the company must convert Human Resources Platform growth into group-level operating profit while demonstrating that Medical Platform investments and acquired intangible assets earn adequate returns.

Profitability Analysis

The reported annualized DuPont ROE was negative 1.9%, comprising a negative 0.6% net profit margin, annualized asset turnover of 0.933x, and financial leverage of 3.35x. The negative net margin is the direct cause of the negative ROE, while elevated leverage magnifies the effect of modest operating losses on shareholder returns. Operating margin improved to negative 0.7% from approximately negative 1.5% in the prior-year quarter, reflecting revenue growth exceeding SG&A growth. However, gross margin fell to 55.0% from approximately 59.2%, a 420-basis-point compression that offset part of the operating-leverage benefit. The most material earnings-driver divergence is segment-level performance: Human Resources Platform segment profit expanded 28.4% to ¥1.71bn, whereas Medical Platform declined from a ¥197m profit to a ¥168m loss. Human Resources Platform revenue grew 27.6% to ¥7.03bn and remains the core business by both revenue and operating-income contribution. Medical Platform revenue increased 26.3% to ¥2.89bn, but its negative 5.8% segment margin contrasts with Human Resources Platform's 24.3% segment margin. New Development Services revenue declined 22.2% to ¥266m and reported a ¥163m segment loss, equivalent to a negative 61.3% margin. Unallocated corporate costs declined modestly to ¥1.44bn from ¥1.50bn, but remained larger than aggregate segment profit and prevented a consolidated operating profit. Interest coverage was negative 1.34x because EBIT was negative, meaning operating earnings did not cover ¥50m of quarterly interest expense. The reported annualized ROIC of negative 0.8% also indicates that the current operating return is below a level that can support the capital deployed in acquisitions and intangible assets. Under JGAAP, goodwill is amortized, so operating profit and net income can be lower than under IFRS for comparable acquired businesses; nevertheless, the current operating loss means the issue is not solely an accounting-standard presentation effect.

Growth Assessment

Revenue growth of 25.2% demonstrates continued demand expansion across the two main platforms. Human Resources Platform accounted for 69.0% of consolidated revenue and added ¥1.52bn of year-on-year sales, making it the principal source of growth. Medical Platform added ¥602m of revenue and represented 28.4% of revenue, although the segment's movement into loss limits the quality of that growth. New Development Services contracted by ¥76m year on year, reducing diversification benefits. Total segment profit of ¥1.38bn was essentially unchanged year on year despite the ¥2.05bn increase in revenue, showing that incremental profitability was weak outside the Human Resources Platform. Full-year guidance calls for revenue of ¥46.40bn, operating income of ¥2.95bn, ordinary income of ¥3.25bn, and net income attributable to owners of ¥1.80bn. Q1 revenue represents 22.0% of the full-year revenue target, 3.0 percentage points below the standard Q1 progress benchmark of 25%. Q1 operating loss of ¥67m compares with the full-year operating-income target of ¥2.95bn, requiring a material earnings acceleration over the remaining nine months. Q1 ordinary income represents 1.9% of the annual ordinary-income forecast and the net loss is inconsistent with the full-year ¥1.80bn net-income target at this early stage. The unchanged guidance therefore places emphasis on margin recovery, especially within Medical Platform, and on controlling centrally incurred costs. Growth sustainability will depend on whether acquired healthcare-related assets and platform investments can yield revenue growth with positive segment margins rather than merely increasing the asset base.

Financial Health

Liquidity is adequate on reported current-balance-sheet measures, with a current ratio of 136.4%, a quick ratio of 134.0%, and working capital of ¥4.65bn. Cash and deposits increased ¥2.42bn year on year to ¥10.99bn, equivalent to 25.2% of total assets. Current assets of ¥17.41bn exceeded current liabilities of ¥12.76bn, so there is no immediate current-ratio warning. The maturity profile nevertheless requires attention: the current portion of long-term loans was ¥4.79bn, while cash balances provide coverage but reduce the cash available for investment, integration, and other operating needs. Reported long-term loans increased ¥2.94bn year on year to ¥15.24bn, reflecting greater reliance on debt funding. D/E of 2.35x exceeds the 2.0x warning threshold and indicates an aggressive capital structure. Debt-to-capital was 53.9%, below the 60% high-concern benchmark but still elevated for a company currently generating negative EBIT. Interest coverage of negative 1.34x is a material debt-service warning because operating earnings do not cover interest expense. Total equity decreased ¥1.74bn year on year to ¥13.06bn, while total liabilities increased ¥4.17bn to ¥30.63bn. The increase in treasury stock to negative ¥6.53bn from negative ¥4.84bn reduced equity and represents a significant capital-allocation consideration while leverage is elevated. Goodwill of ¥12.92bn equals 99.0% of equity, far above the 50% warning level. Intangible assets of ¥23.13bn equal 52.9% of total assets, also well above the 30% concentration warning threshold. This asset composition makes balance-sheet value and future earnings sensitive to the performance of acquired businesses and the recoverability of intangible assets. Contract liabilities of ¥2.23bn provide an operating funding source, while deferred tax liabilities were ¥2.56bn.

Notable B/S Changes

Cash and deposits: +¥2.42bn (+28.2%) to ¥10.99bn - strengthens reported liquidity and provides coverage for near-term obligations, although the source of the increase cannot be determined without cash-flow data. Long-term loans: +¥2.94bn (+23.9%) to ¥15.24bn - debt-funded capital structure has become more pronounced; combined with negative interest coverage, this increases refinancing and debt-service sensitivity. Current portion of long-term loans: +¥1.00bn (+26.4%) to ¥4.79bn - a larger amount of debt is due within one year, requiring continued liquidity management. Treasury stock: -¥1.68bn (-34.8%) to negative ¥6.53bn - the increased treasury-share balance reduced equity and is notable given D/E of 2.35x. Inventories: -¥150m (-33.0%) to ¥305m - lower inventory reduces working-capital absorption, although the operating or cash-flow driver cannot be isolated from balance-sheet data. Total equity: -¥1.74bn (-11.8%) to ¥13.06bn - lower equity alongside higher liabilities increased financial leverage. Total liabilities: +¥4.17bn (+15.8%) to ¥30.63bn - liabilities reached 70.1% of total assets, reinforcing the importance of restoring positive operating cash earnings.

Cash Flow Quality

No cash-flow statement figures were reported for the period, so operating cash generation, free cash flow, cash conversion, and OCF-to-net-income cannot be assessed. Accordingly, it is not possible to determine whether the Q1 net loss was supported by cash generation or affected by working-capital movements. Cash and deposits increased ¥2.42bn year on year to ¥10.99bn, but the balance-sheet movement alone does not establish operating cash-flow quality because it may reflect financing, acquisitions, or other investing activities. Inventory declined ¥150m, or 33.0%, to ¥305m, which reduces capital tied up in stock; however, the cash-flow effect cannot be isolated without the cash-flow statement. Receivables increased ¥472m, or 15.5%, to ¥3.51bn, broadly consistent with revenue expansion but remaining relevant to cash-conversion monitoring. The key earnings-quality concern evident from the income statement is that ordinary income of ¥61m was generated despite a ¥67m operating loss, relying on ¥213m of non-operating income. Non-operating income represented 2.1% of revenue, below the 5% threshold for a more extensive non-operating-income concentration concern, but it was still material to the transition from operating loss to ordinary profit. The ¥48m extraordinary loss and ¥76m tax expense turned a small pre-tax profit into a ¥62m net loss.

Dividend Sustainability

The full-year forecast specifies a dividend per share of ¥0.00. Therefore, no cash dividend payout obligation is currently indicated, and a dividend payout ratio is not meaningful against the expected policy. The absence of a planned dividend preserves internal funds at a time when operating profitability remains weak and leverage is elevated. This conservatism is appropriate given negative Q1 EBIT, negative interest coverage, and the need to support debt service and integration of acquired intangible assets. Treasury stock increased by ¥1.68bn year on year, but the period data do not identify the timing or cash-flow amount of repurchases; a total return ratio cannot therefore be calculated. Future capital-return capacity should be assessed against sustainable free cash flow, debt reduction needs, and any goodwill or intangible-asset impairment risk.

Risk Assessment

Business risks include Medical Platform profitability risk: revenue increased 26.3% to ¥2.89bn, but the segment shifted from ¥197m profit to a ¥168m loss, indicating weak current incremental economics., Core-business concentration risk: Human Resources Platform generated 69.0% of revenue and all meaningful segment earnings, leaving consolidated profitability dependent on its continued growth and margin resilience., New Development Services execution risk: revenue declined 22.2% to ¥266m and the segment recorded a ¥163m loss, limiting its contribution to diversification., IT and healthcare-platform competition risk: customer acquisition costs, recruitment-market conditions, technological change, cybersecurity exposure, and healthcare-sector regulatory requirements could affect platform growth and margins., M&A integration risk: the asset base is highly acquisition-related, and realizing expected synergies and revenue growth from acquired healthcare businesses is necessary to justify the capital deployed..

Financial risks include High leverage risk: D/E of 2.35x exceeds the 2.0x warning threshold, while long-term loans rose ¥2.94bn year on year to ¥15.24bn., Debt-service risk: negative 1.34x interest coverage means negative EBIT did not cover Q1 interest expense of ¥50m; higher financing costs or delayed profit recovery would worsen coverage., Goodwill impairment risk: goodwill of ¥12.92bn equals 99.0% of equity, making equity highly exposed if acquired businesses underperform their valuation assumptions., Intangible-asset concentration risk: intangible assets of ¥23.13bn represent 52.9% of total assets, increasing the sensitivity of asset values and future amortization charges to acquisition performance., Tax and below-the-line volatility risk: ¥76m of tax expense on ¥13m of pre-tax profit produced a 584.6% effective tax rate and contributed to the net loss..

Key concerns include Highest priority: group operating profitability must improve materially to meet the ¥2.95bn full-year operating-income forecast after a ¥67m Q1 operating loss., High priority: Medical Platform needs to restore positive segment profitability; continued losses would dilute the strong earnings contribution from Human Resources Platform., High priority: monitor repayment or refinancing capacity for the ¥4.79bn current portion of long-term loans and the trajectory of interest expense., High priority: monitor goodwill and intangible-asset recoverability, particularly because goodwill/equity is 99.0% and intangibles/assets is 52.9%., Moderate priority: treasury stock expanded by ¥1.68bn year on year despite lower equity and elevated leverage, making capital-allocation discipline important..

Investment Implications

Key takeaways include Revenue growth is strong at 25.2%, led by the Human Resources Platform, but group-level profit conversion remains insufficient., Operating loss narrowed year on year, and SG&A grew slower than revenue, but gross-margin compression limited operating leverage., Human Resources Platform is the core business, with a 24.3% segment margin and ¥1.71bn of segment profit., Medical Platform's loss-making performance is the central operational issue despite its 26.3% revenue growth., The capital structure is riskier than the income statement alone suggests because D/E is 2.35x, interest coverage is negative, and goodwill nearly equals total equity., The maintained full-year forecast implies a substantial improvement in profitability after Q1..

Metrics to watch include Consolidated operating margin and the pace of recovery toward the ¥2.95bn full-year operating-income target, Human Resources Platform revenue growth and segment margin, Medical Platform segment profit or loss and margin recovery, Gross margin, SG&A-to-sales ratio, and unallocated corporate costs, Cash flow from operations, free cash flow, and cash conversion once reported, Long-term loan balances, current debt maturities, interest expense, and interest coverage, Goodwill and intangible-asset amortization, impairment indicators, and the goodwill-to-equity ratio, Treasury-share movements and capital returns relative to cash generation and leverage.

Regarding relative positioning, Medley exhibits growth characteristics typical of an expanding healthcare and HR technology platform, with a high-margin Human Resources Platform supporting revenue growth. Relative to a financially conservative profitable IT-services peer, however, its negative operating margin, negative annualized ROIC of 0.8%, elevated D/E, and unusually large acquired-intangible asset base indicate a more execution-dependent and balance-sheet-sensitive profile. JGAAP goodwill amortization may depress reported operating earnings relative to IFRS acquirers, but the scale of leverage and intangible concentration remains economically relevant irrespective of accounting standard.