MTI : Financial Results for Q3 FY2023

UNOFFICIAL TRANSLATION

The formal official document is in Japanese

Summary of Consolidated Financial Results for the First Three Quarters of

Fiscal Year ending September 30, 2023 (Japanese Accounting Standards)

				August 8, 2023
Listed Company Name: MTI Ltd.	Listing Exchanges:	Tokyo Stock Exchange
Securities Code	9438	URL	https://ir.mti.co.jp/eng/
Representative:	Toshihiro Maeta, President and Chief Executive Officer
Contact:	Hiroshi Matsumoto, Senior Managing Director			Phone: [phone]

Scheduled date to submit the Quarterly Securities Report (Shihanki Houkokusho): August 14, 2023

Scheduled date of dividend payment: -

Supplementary documents for quarterly results: Yes

Quarterly results briefing: Yes (for securities analysts and institutional investors(On-demand))

(Figures less than one millions of yen are omitted)

1. Consolidated business results for the nine months ended June 30, 2023 (October 1, 2022- June 30, 2023)

(1) Consolidated operating results (cumulative total)

(Percentages represent year-on-year changes)

Net sales

Operating income

Ordinary income

Profit attributable to

owners of parent

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

First three quarters of fiscal year

20,113

3.9

(17)

－

151

72.4

495

－

ending September 30, 2023

First three quarters of fiscal year

19,354

(0.8)

422

(76.5)

87

(93.1)

(88)

－

ended September 30, 2022

(Note) Comprehensive income

Nine months ended June 30, 2023: 469 millions of yen (－%)

Nine months ended June 30, 2022: (273) millions of yen (－%)

Net income

Net income

per share

per share/diluted

Yen

Yen

First three quarters of fiscal year

9.03

－

ending September 30, 2023

First three quarters of fiscal year

(1.62)

－

ended September 30, 2022

(2) Consolidated financial position

Total assets

Net assets

Equity ratio

Millions of yen

Millions of yen

%

As of June 30, 2023

29,480

17,515

46.9

As of September 30, 2022

29,265

17,877

48.1

(Reference) Shareholders' equity:

As of June 30, 2023: 13,837 millions of yen

As of September 30, 2022: 14,065 millions of yen

2. Dividends

			Dividend per share
	End of first	End of second	End of third		Year end	Annual
	quarter	quarter	quarter
	Yen	Yen	Yen		Yen	Yen
Fiscal year ended September 30, 2022	－	8.00	－		8.00	16.00
Fiscal year ending September 30, 2023	－	8.00	－
Fiscal year ending					8.00	16.00
September 30, 2023(forecast)
(Note) Revisions to dividend forecasts published most recently: No

3. Forecast for consolidated business results for the fiscal year ending September 30, 2023 (October 1, 2022 - September 30, 2023)

(Percentages represent year-on-year changes.)

Net sales

Operating income

Ordinary income

Profit attributable to

Net income

owners of parent

per share

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

Yen

Full year

26,800

1.2

200

(77.0)

400

(17.7)

460

－

8.39

(Note) Revisions to forecasts for consolidated business results published most recently: No

* Note:

(1) Important changes of subsidiaries during the term

(changes in specified subsidiaries resulting in change in scope of consolidation): Not applicable

New: -

Exception: -

1. Application of specific accounting treatment to the preparation of quarterly consolidated financial statements: Not applicable
2. Changes in accounting policies and changes or restatement of accounting estimates

(i)	Changes in accounting policies due to the modification in accounting methods:	Not applicable
(ii)	Changes in accounting policies other than (i):	Not applicable
(iii)	Changes in accounting estimates:	Not applicable
(iv)	Restatement:	Not applicable

1. Number of outstanding shares (common shares)

1. Number of shares outstanding at the end of period (including treasury shares):

6/23:	61,263,000 shares	9/22:	61,263,000 shares
(ii) Number of treasury shares at the end of period
6/23:	6,405,973 shares	9/22:	6,450,273 shares
(iii) Average number of shares during the period (quarterly consolidated cumulative period)
Nine months ended 6/23: 54,833,564 shares	Nine months ended 6/22 54,774,419 shares

* Status of a quarterly review

This earnings release is not subject to an audit.

* Cautionary statement with respect to forward-looking statements

The forward-looking statements included in this material are based on the Company's judgments, assumptions, and convictions based on information available to the Company at the time of publication of this document and may differ materially from actual results for a range of factors, including conditions of Japanese and overseas economies, changes in the situation of operations in Japan and overseas, and uncertainties and potential risks inherent in forward-looking statements. The risks and uncertainties include unforeseeable effects of future events. The information on consolidated earnings forecasts and other future forecasts on page 4 of the Accompanying Materials describes notes on the assumptions of the earnings forecasts and the use of the earnings forecasts.

A video (Japanese) of the briefing on earnings for the first three quarters for securities analysts and institutional investors will be made available on demand on the Company's website.

Accompanying materials - Contents

1.	Qualitative information on financial results for the current quarterly settlement	2
	(1)	Explanation on operating results	2
	(2)	Explanation on financial position	3
	(3)	Explanation of future forecast information including consolidated forecast	4
2.	Quarterly Consolidated financial statements and important notes	5
	(1) Quarterly consolidated balance sheet	5

1. Quarterly consolidated statement of income and quarterly consolidated statement of

comprehensive income	7
(3) Notes concerning quarterly consolidated financial statements	9
(Notes concerning going concern assumption)	9
(Notes in the event of significant changes in shareholders' equity)	9
(Segment information, etc.)	9

1

1. Qualitative information on financial results for the current quarterly settlement

(1) Explanation on operating results overview of the first three quarters of fiscal year ending September 30, 2023 (Period from October 1, 2022 to June 30, 2023)

The Group is actively engaged in the healthcare business and the school DX business, both of which are expected to expand in the future, in order to enhance its corporate value over the medium to long term.

During the first three quarters under review, consolidated net sales stood at ¥20,113 million (up 3.9% year on year) and gross profit at ¥13,617 million (up 0.1 % year on year), attributable to an increase in cost of sales.

The operating loss was ¥17 million (compared to operating income of ¥422 million in the same period of the previous year) due to an increase in selling, general and administrative expenses due chiefly to a rise in advertising expenses.

Ordinary income stood at ¥151 million (up 72.4% year on year) chiefly due to non-operating income of ¥194 million, including a share of profit of entities accounted for using equity method of ¥78 million (compared to a share of loss of entities accounted for using equity method of ¥406 million in the same period of the previous year).

Although there were impacts from the postponement of the recording of deferred tax assets and income taxes- deferred in the consolidated financial statements in accordance with the current accounting standards for the income tax-related treatment of a gain on the transfer of shares, associated with the transfer of some of the shares in Boshimo Ltd., a consolidated subsidiary, to MTI Healthcare Holdings Inc., a consolidated subsidiary, in October 2022, profit attributable to owners of parent came to ¥495 million (compared to a loss of ¥88 million in the same period of the previous year), reflecting a consumption taxes refund of ¥873 million and a gain on change in equity of ¥237 million in extraordinary income.

Consolidated business results

(Period from October 1, 2022 to June 30, 2023)

	First three quarters	First three quarters	Change
	of the fiscal year ending	of the fiscal year ended
	Amount		Percentage
	September 30, 2023	September 30, 2022
	Millions of yen	Millions of yen	Millions of yen		%
Net sales	20,113	19,354	+758		+3.9
Cost of sales	6,495	5,756	+739		+12.8
Gross profit	13,617	13,597	+19		+0.1
SG&A	13,635	13,175	+460		+3.5
Operating income	(17)	422	(440)		－
Ordinary income	151	87	+63		+72.4
Loss attribute to owners	495	(88)	+583		－
of parent

Breakdown of SG&A

(Period from October 1, 2022 to June 30, 2023)

	First three quarters	First three quarters	Change
	of the fiscal year ending	of the fiscal year ended
	Amount		Percentage
	September 30, 2023	September 30, 2022
	Millions of yen	Millions of yen	Millions of yen		%
Total	13,635	13,175	+460		+3.5
Advertising expense	1,569	1,137	+432		+38.0
Personnel expenses	5,929	5,786	+142		+2.5
Commission fee	2,223	2,315	(92)		(4.0)
Subcontract expenses	1,462	1,542	(80)		(5.2)
Depreciation	924	991	(67)		(6.8)
Other	1,526	1,400	+125		+9.0

2

Operating results by segment are as follows.

Effective from the first quarter of the consolidated fiscal year under review, the classification of reportable segments has been revised. Comparison and analysis for the first three quarters under review are based on the new segments.

• Content business

The content business includes B2C monthly billing services (excluding the "Luna-Luna" healthcare service for women and the "CARADA medica" health Q&A service in cooperation with healthcare professionals) and the B2B original comic distribution business that offers original comic content to comic distributors.

This segment served 3.14 million of paying subscribers. The figure was 60 thousand smaller than at the end of September 2022. The number of paying subscribers was nearly level, reflecting an increase in the number of paying subscribers to the "AdGuard" security-related app.

Net sales came to ¥13,819 million (up 3.0% year on year) mainly due to video sales at the consolidated subsidiary Video Market Corporation, despite a decrease in the number of paying subscribers compared to the same period last year.

Operating income was ¥4,005 million (down 4.3% year-on-year) due to an increase in SG&A expenses resulting from a rise in advertising expenses to promote "AdGuard" membership.

• Healthcare business

The healthcare business includes B2C monthly billing services under the "Luna-Luna" and "CARADA medica" brands and B2B and B2B2C healthcare services for medical institutions and local governments, such as the cloud drug record service and the maternal health record book app.

This segment served 550 thousand of paying subscribers. The figure was 40 thousand smaller than at the end of September 2022. On the other hand, the number of pharmacies that offer the cloud drug record service came to 1,639 at the end of June 2023 (up 375 from the end of September 2022), as the result of great efforts focused on increasing the number of pharmacies whose motivation to introduce such service is growing.

Net sales came to ¥3,351 million (up 14.9% year on year), given expanded sales of Cloud drug record service and Childcare DX service, etc. Operating loss stood at ¥233 million (compared to a loss of ¥899 million in the same period of the previous year), attributable to the effect of increased sales and cost containment measures.

• School DX business

The school DX business includes school DX business developed for educational institutions by the consolidated subsidiary Motivation Works Inc.

Net sales amounted to ¥581 million (up 114.4% year on year) due to an increase in monthly usage fees from educational institutions that have introduced the "BLEND" cloud-based school business support system. "BLEND" has been used by 566 educational institutions since April 2023 (226 institutions more than a year ago). Despite the significant increase in net sales, the operating loss amounted to ¥569 million (compared to a loss of ¥535 million in the same period of the previous year) due to an increase in subcontracting expenses resulting from stricter recording of software assets from the second half of the previous fiscal year.

• Other business

Other business includes the B2B AI business operated by Automagi Inc., a consolidated subsidiary, and the Company's DX support business for large companies and solution business.

Net sales amounted to ¥3,600 million (down 3.8% year on year) due to a decrease in orders for the AI business. Operating loss was ¥1,220 million (compared to an operating loss of 428 million yen in the same period of the previous year), primarily reflecting an increase in the cost of sales as a result of the ongoing response to low- margin projects in the DX support business for major corporate customers in addition to decreased sales in the AI business.

(2) Explanation on financial position

At the end of the first three quarters under review, total assets increased ¥214 million from the end of September 2022, to ¥29,480 million.

Current assets increased ¥298 million mainly due to an increase in cash and deposits despite a decrease in consumption taxes refund receivable. Non-current assets declined ¥83 million chiefly due to a decrease in goodwill and customer-related assets, which more than offset an increase in investment securities.

Current liabilities increased ¥1,039 million, mainly reflecting rises in income taxes payable and contract liabilities. Non-current liabilities fell ¥462 million chiefly due to a decline in long-term borrowings.

Net assets decreased ¥362 million chiefly due dividend payments, despite a profit attributable to owners of parent of ¥495 million.

3