Interworks Confidence (7374) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 FY2026 showed an increase in revenue but a decrease in earnings, with the most important point being that revenue growth has not translated into profit growth. Revenue was ¥72.6B (+13.8% YoY), Operating Income was ¥9.8B (-3.4%), Ordinary Income was ¥9.6B (-5.6%), and Net Income was ¥6.0B (-29.2%). The primary driver of revenue growth was the expansion of staffing and outsourcing services in the HR Solutions Business, with the expansion of the scope of consolidation through M&A also contributing. However, increases in the cost of sales, SG&A expenses, and the effective tax rate resulted in lower earnings, particularly contributing to the significant decline in Net Income.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥72.6B, representing a +13.8% increase YoY. By segment, staffing and outsourcing services led growth at ¥49.6B (68.3% of total revenue, +21.2% YoY), while recruitment services were ¥11.4B (+0.4%) and Media & Solutions was ¥11.7B (+1.4%), both showing limited growth. Revenue from “Outsourcing and Other” within staffing and outsourcing services expanded to approximately 3.0 times the previous level, with changes in the service mix contributing to revenue growth.

【Profit and Loss】Operating Income was ¥9.8B (-3.4% YoY), and the Operating Margin declined to 13.4% from 15.8% in the same period of the previous year, a decrease of 2.4pt. The gross margin also declined to 46.6% from 50.2%, a decrease of 3.6pt, confirming a change in the cost structure. Ordinary Income was ¥9.6B (-5.6%), with the impact of non-operating income and expenses being minor. Net Income declined by 29.2% to ¥6.0B, with the decline widening; this was because the effective tax rate rose from approximately 14.2% in the previous year to 37.1%, meaning tax-related factors reduced Net Income more significantly than the deterioration in business earnings. Overall, the period was characterized by higher revenue but lower earnings, with declining efficiency in converting revenue growth into profit being the key feature of the current fiscal year.

Segment Analysis

Staffing and outsourcing services generated revenue of ¥49.6B (68.3% of total revenue) and segment profit of ¥8.8B (-7.4% YoY), with a segment margin of 17.8%, down 5.5pt from 23.4% in the same period of the previous year. While this segment accounted for most of consolidated revenue growth, its deteriorating margin is putting pressure on the company-wide margin. Recruitment services generated revenue of ¥11.4B (+0.4%) and segment profit of ¥3.9B (-3.3%), maintaining a high segment margin of 34.5%. Media & Solutions generated revenue of ¥11.7B (+1.4%) and segment profit of ¥4.2B (+6.6%), with the segment margin improving to 36.0% (+1.8pt YoY); it was the only one of the three segments to post an improvement in profitability.

Key Financial Metrics

【Profitability】The Operating Margin declined to 13.4% from 15.8% in the same period of the previous year, while the Net Profit Margin declined to 8.3% from 13.4%, indicating deteriorating profitability despite revenue growth. 【Cash Quality】Comprehensive Income was ¥6.0B, broadly in line with Net Income of ¥6.0B, and the divergence attributable to other comprehensive income was limited. 【Investment Efficiency】Annualized ROE was 13.2%, maintaining a reasonable level from a profitability perspective. 【Financial Soundness】The Equity Ratio was extremely high at 81.6%, while cash and deposits of ¥41.5B accounted for 55.4% of total assets. With Current Assets of ¥52.9B versus Current Liabilities of ¥13.7B, working capital was substantial and short-term financial risk was low.

Cash Flow Analysis

Although individual data from the Statement of Cash Flows has not been disclosed, cash trends can be assessed from balance sheet movements. Cash and deposits were ¥41.5B, up from ¥39.9B in the same period of the previous year, indicating that the cash level has been maintained despite business expansion and the execution of M&A. Accounts receivable increased by +28.9% YoY to ¥9.5B, outpacing the revenue growth rate; attention should be paid to the possibility that changes in collection periods accompanying growth may affect cash efficiency. Accounts payable increased to ¥1.7B, but the absolute amount was small and the impact on payment capacity was limited. Goodwill increased to ¥16.3B, reflecting investments made through the acquisitions of Let’s Eye, BRAISE, and G’s Corporation. Overall, the company’s financial structure indicates that it is advancing M&A investments while maintaining ample cash.

Quality of Earnings

Ordinary Income and Profit Before Tax were approximately at the same level (¥9.6B and ¥9.6B), while extraordinary losses were minor at ¥0.03B and primarily consisted of losses on the disposal of fixed assets. Accordingly, there were no significant one-time factors materially impairing earnings quality. Meanwhile, the substantial decline in Net Income was attributable to the increase in the effective tax rate from approximately 14.2% in the same period of the previous year to 37.1%; the fact that tax effects had a significantly greater impact on the presentation of results than fluctuations in business earnings is important when assessing earnings quality. Non-operating income was ¥0.1B, equivalent to only 0.2% of revenue, indicating limited dependence on non-operating factors, with earnings from the core business accounting for the majority of the bottom line. Comprehensive Income of ¥6.0B was broadly in line with Net Income, and no significant accrual distortion was observed.

Earnings Forecast and Guidance

Progress against the full-year plan was 74.1% for revenue, 76.8% for Operating Income, 78.1% for Ordinary Income, and 78.2% for Net Income, slightly exceeding the standard 75% progress level on the earnings front. It should be noted that the earnings forecast was revised during the current quarter. The full-year plan itself assumes a scenario of higher revenue but lower earnings, forecasting revenue growth of +16.8% alongside declines of -2.5% in Operating Income and -6.2% in Ordinary Income; the company’s plan therefore anticipates deteriorating profitability. Revenue of approximately ¥25.4B and Operating Income of approximately ¥2.95B will be required in Q4. Achieving the full-year Operating Margin target of 13.0% assumes that further deterioration from the cumulative Q3 level of 13.4% will be avoided.

Shareholder Returns

The Q2 dividend was ¥35.00 per share, and there was no revision to the dividend forecast during the current quarter. The full-year dividend forecast is ¥75.00 per share, while the full-year EPS forecast is ¥123.50, resulting in a projected Payout Ratio of 60.7% based on these figures. The Payout Ratio against cumulative Q3 Net Income of ¥6.0B is separately 39.0%; however, the two figures are calculated over different periods and should therefore be distinguished. Given the financial capacity represented by cash and deposits of ¥41.5B, the dividend level is within the company’s financial capacity. However, as the full-year Net Income plan itself assumes a decline YoY, dividend sustainability will depend on a future recovery in profit margins.

Risk Factors

1. Dependence on growth in the staffing and outsourcing business: While this segment accounts for most consolidated revenue growth, its segment profit margin declined by 5.5pt YoY, meaning that fluctuations in personnel expenses and project unit prices have a significant impact on company-wide earnings.

2. M&A integration risk: Goodwill increased to ¥16.3B following the consolidation of Let’s Eye, BRAISE, and G’s Corporation. Goodwill accounts for 26.7% of net assets, and delays in integration or failure to achieve expected returns could lead to impairment risk.

3. Risk of fluctuations in the tax burden: The effective tax rate rose from approximately 14.2% in the same period of the previous year to 37.1%, resulting in Net Income declining by -29.2% versus a -3.5% decline in Profit Before Tax. Fluctuations in tax effects are significantly increasing the volatility of EPS and the Payout Ratio.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Within the industry, both the Operating Margin and Net Profit Margin are above the median.

Growth and Capital Efficiency

The Revenue Growth Rate also exceeds the industry median, representing a growth pace close to the upper limit of the IQR.

※Source: Company compilation

Key Points from the Earnings Results

1. While revenue maintained growth above the industry median, increasing by +13.8% YoY, Operating Income declined by -3.4%; the decline in efficiency in converting revenue growth into profit is the central issue in the current earnings results.

2. The -29.2% decline in Net Income significantly exceeded the deterioration in business earnings (-3.4% to -5.6%), primarily due to the increase in the effective tax rate (14.2%→37.1%). This demonstrates the need to evaluate Net Income separately from segment earnings.

3. The financial foundation, including an Equity Ratio of 81.6% and cash and deposits of ¥41.5B, supports resilience against the increase in goodwill from M&A (¥16.3B) and integration costs. Going forward, the contribution of the acquired companies to earnings and trends in goodwill amortization and impairment will be key structural points of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,016–¥1,072 at ±1% for the cost of equity, and ¥1,042–¥1,045 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and are not forecasts of the market share price or recommendations for any specific investment action, nor do they 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 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 discretion and responsibility, after consulting a professional as necessary.

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