MTI : Financial Results for Q1 FY2023

UNOFFICIAL TRANSLATION

The formal official document is in Japanese

Summary of Consolidated Financial Results for the First Quarter of

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

			February 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): February 14, 2023

Scheduled date of dividend payment: -

Supplementary documents for quarterly results: Yes

Quarterly results briefing (Japanese): Yes (for securities analysts and institutional investors (on demand))

(Figures less than one millions of yen are omitted)

1. Consolidated business results for the three months ended December 31, 2022 (October 1, 2022- December 31, 2022)

(1) Consolidated operating results (cumulative total)

(Percentages represent year-on-year changes)

Net sales

Operating income

Ordinary income

Profit attributable to

owners of parent

First quarter of fiscal year ending

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

7,080

8.1

(61)

-

(88)

-

(590)

-

September 30, 2023

First quarter of fiscal year ended

6,551

3.9

451

(18.5)

395

(20.2)

252

14.7

September 30, 2022

(Note) Comprehensive income:

Three

months

ended December 31, 2022: (639) millions of yen -%

Three months ended December 31, 2021: 175 millions of yen 20.9%

Net income

Net income

per share

per share/diluted

Yen

Yen

First quarter of fiscal year ending

(10.77)

-

September 30, 2023

First quarter of fiscal year ended

4.62

4.62

September 30, 2022

(2) Consolidated financial position

Total assets

Net assets

Equity ratio

Millions of yen

Millions of yen

%

As of December 31, 2022

29,280

16,783

44.6

As of September 30, 2022

29,265

17,877

48.1

(Reference) Shareholders' equity:

As of December

31, 2022: 13,056 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

Fiscal year ended

Yen

Yen

Yen

Yen

Yen

-

8.00

-

8.00

16.00

September 30, 2022

Fiscal year ending

-

September 30, 2023

Fiscal year ending

8.00

-

8.00

16.00

September 30, 2023 (forecast)

(Note) Revision of dividend forecast for

during

this period

: 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	%	Millions of yen		%	Yen
		yen
For the first half	12,700		(2.1)	200	(66.6)	0	(100.0)	(740)		-	(13.55)
Full year	26,000		(1.8)	800	(8.1)	400	(17.7)	(600)		-	(10.99)

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

* Notes

(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

(4) Number of outstanding shares (common shares)

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

12/2022:	61,263,000 shares	09/2022:	61,263,000 shares
(ii) Number of treasury shares at the end of period
12/2022:	6,453,173 shares	09/2022:	6,450,273 shares

• 1. Average number of shares during the period (quarterly consolidated cumulative period)
     Three months ended 12/2022: 54,810,804 shares Three months ended 12/2021: 54,751,252 shares
• This Summary of Consolidated Financial Results for the First Quarter is not included in the scope of quarterly review by certified public accountants or audit corporations.
• 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 quarter 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	5
	(1)	Quarterly consolidated balance sheet	5
	(2)	Quarterly consolidated statements of income and quarterly consolidated statements of comprehensive
		income	7

1

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

(1) Explanation on operating results

Overview of the first quarter of fiscal year ending September 30, 2023 (Period from October 1, 2022 to December 31, 2022)

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 quarter under review, consolidated net sales stood at ¥7,080 million (up 8.1% year on year) and gross profit at ¥4,542 million (down 2.5% year on year), attributable to an increase in cost of sales.

The operating loss and an ordinary loss were ¥61 million (compared to operating income of ¥451 million in the same period of the previous year) and ¥88 million (compared to ordinary income of ¥395 million in the same period of the previous year), respectively, due to an increase in selling, general and administrative (SG&A) expenses.

A loss attributable to owners of parent came to ¥590 million (compared to profit of ¥252 million in the same of the previous year). This mainly reflected 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.

Consolidated business results

(Period from October 1, 2022 to December 31, 2022)

	First quarter	First quarter	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	7,080		6,551	+529	+8.1
Cost of sales	2,538		1,895	+643	+34.0
Gross profit	4,542		4,656	(114)	(2.5)
SG&A	4,603		4,204	+398	+9.5
Operating profit (loss)	(61)		451	(512)	－
Ordinary profit (loss)	(88)		395	(484)	－
Profit (loss) attributable to	(590)		252	(843)	－
owners of parent
Breakdown of SG&A
(Period from October 1, 2022 to December 31, 2022)
	First quarter		First quarter	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	4,603		4,204	+398	+9.5
Advertising expenses	479		360	+118	+33.0
Personnel expenses	1,989		1,912	+76	+4.0
Commission fee	746		753	(6)	(0.8)
Subcontract expenses	549		440	+109	+25.0
Depreciation	289		303	(13)	(4.5)
Other	549		435	+113	(26.0)

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 quarter 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.

The number of paying subscribers in this segment came to 3,180,000 (down 20,000 from the end of September 2022), remaining almost flat. The net decrease in the number of paying subscribers for this business is on a downward trend, reflecting continuing growth in the number of paying subscribers to the "AdGuard" security app.

Net sales came to ¥5,137 million (up 10.7% 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 ¥1,411 million (down 8.0% 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 580 thousand of paying subscribers. The figure was 10 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 1,382 at the end of December 2022 (up 118 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 ¥1,001 million (up 10.2% year on year), given expanded sales of Cloud drug record service and Childcare DX service, etc. Despite the ongoing burden of upfront investment spending, the operating loss stood at ¥145 million (compared to a loss of ¥336 million in the same period of the previous year), attributable to 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 ¥155 million (up 178.5% year on year) due to an increase in monthly usage fees from educational institutions that newly introduced the "BLEND" cloud-based school business support system in April 2022. Despite the significant increase in net sales, the operating loss amounted to ¥246 million (compared to a loss of ¥121 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-type 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 ¥1,190 million (down 5.6% year on year). The operating loss was ¥393 million (compared to an operating loss of 36 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.

(2) Explanation on financial position

At the end of the first quarter under review, total assets increased ¥14 million from September 30, 2022, to ¥29,280 million.

Regarding the assets, the current assets increased ¥137 million, mainly due to a rise in cash and deposits. Non-current assets fell ¥122 million primarily due to decreases in goodwill and customer-related assets, despite an increase in software.

3