Q1 was loss-making despite higher revenue due to lower gross margin and upfront investment; confirm recovery in profitability in H1

FY2027-Q1 revenue was ¥22.014 billion, up ¥3.180 billion, or 16.9%, from ¥18.833 billion in the previous-year quarter. However, operating profit turned from ¥301 million to an operating loss of ¥123 million, while ordinary profit turned from ¥359 million to an ordinary loss of ¥111 million. Revenue growth alone was not enough to lift profit, and the sales mix and upfront costs had a major impact on quarterly earnings.

The earnings supplement identified the factors behind the change in operating profit as follows: the effect of higher revenue contributed ¥735 million to profit, while the decline in gross margin had a negative impact of ¥914 million and higher SG&A expenses from upfront investment had a negative impact of ¥246 million. The breakdown of higher SG&A expenses included ¥76 million for increased investment in personnel, ¥30 million to strengthen the partner strategy, ¥45 million for IT and AI investment and ¥43 million to strengthen business promotion. Gross profit was ¥4.175 billion and SG&A expenses were ¥4.299 billion, meaning gross profit alone was insufficient to absorb SG&A expenses.

By business category, product revenue rose sharply by 26.5% year on year to ¥15.787 billion, while engineering services revenue fell 2.1% to ¥6.226 billion. The company explained that although the acquisition of large product projects lifted revenue, the change in sales mix lowered gross margin by 4.1 percentage points. Accordingly, profitability by project is important, not only the revenue scale of product projects. As the company reports a single segment, it does not disclose operating profit or gross profit by business category.

For the full year, the company plans revenue of ¥107.0 billion and operating profit of ¥8.7 billion. Starting from the Q1 operating loss of ¥123 million, it will need to generate ¥8.823 billion in operating profit over the remaining 3 quarters, or an average of ¥2.941 billion per quarter. In FY2027-H1, we will use analysis with amounts to assess whether gross margin recovers from 19.0%, whether costs continue to rise as engineering resources expand, and whether investments in personnel and AI begin to appear in revenue growth or productivity improvements.