SMS Co., Ltd. (2175) Q1 FY2027 Earnings Deep Dive: Detailed KPI Disclosure for Growth Drivers and the Blueprint for Structural Reform to Enhance Corporate Value

Overview and Earnings Summary

SMS Co., Ltd. (Securities Code: 2175) delivered a solid start to the fiscal year ending March 31, 2027, with strong growth in both top-line revenue and profit at all levels for the first quarter. Consolidated revenue for the quarter reached ¥20.212 billion (+8% YoY) , with EBITDA at ¥5.19 billion (+10% YoY) , operating profit at ¥4.308 billion (+19% YoY) , and ordinary profit at ¥5.432 billion (+14% YoY) . Profit attributable to owners of the parent stood at ¥3.728 billion (-5% YoY) , primarily due to quarterly fluctuations in tax expenses related to overseas subsidiaries.

A key highlight of this earnings announcement is the significant expansion of disclosures, reflecting a commitment to management transparency and market engagement . Starting this quarter, the company has begun disclosing quarterly trends for key performance indicators (KPIs). These include EBITDA and operating profit by segment, as well as number of Career Partners (CPs) and productivity in the Career segment, and ARPA (Average Revenue Per Account) and ARR (Annual Recurring Revenue) in the Elderly Care and Disability Welfare Management Support segment.

Furthermore, in July 2026, the company established the "Corporate Value Enhancement Committee" directly under the Board of Directors. This committee has launched four working groups (WGs) tasked with reviewing the business portfolio and improving capital efficiency. This report extracts 10 key topics to provide a detailed analysis of the company's business structure and its medium-to-long-term growth story.

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1. Q1 Consolidated Performance Highlights and Revenue Structure Analysis

To grasp the overall consolidated performance, it is essential to examine both top-line growth and the profit structure.

The slide above summarizes the key consolidated P&L figures for Q1 FY2027. The critical takeaway from this data is the simultaneous achievement of robust revenue growth (+8% YoY) and even stronger operating profit growth (+19% YoY) .

Behind this profit growth, beyond the natural increase in operating profit from higher sales, lies a shift in the cost structure . A detailed examination of the P&L shows that cost of sales was contained at ¥1.809 billion (+4% YoY), and SG&A expenses were ¥14.094 billion (+6% YoY). Notably, the combined total of depreciation and amortization of goodwill decreased significantly to ¥823 million (-23% YoY). This is primarily due to the reduced amortization burden following the impairment losses on intangible fixed assets related to overseas businesses recorded in the previous fiscal year (FY2026) .

Conversely, "Other" expenses increased to ¥3.171 billion (+16% YoY), driven by higher project costs associated with aggressive hiring in the Career and Elderly Care/Disability Welfare Management Support segments. The company plans to accelerate investment in human capital from Q2 onwards. Consequently, the full-year earnings outlook remains in line with initial projections, with full-year EBITDA growth expected to be -9% YoY and operating profit projected to remain at the previous year's level .

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2. Career Segment: Productivity Gains via AI and Hiring Initiatives

The core Career segment provides recruitment and direct recruiting (DR) services for industries facing labor shortages, such as medical, nursing, and childcare. Q1 revenue was ¥14.11 billion (+8% YoY) , and EBITDA was ¥5.31 billion (+10% YoY) .

Looking at the breakdown, the core recruitment business revenue grew by 9% YoY to ¥13.403 billion , maintaining strong growth. Supported by robust hiring demand from providers, the improvement of the matching process between job seekers and hiring facilities using AI has contributed consistently. In a service quality survey conducted as a project commissioned by the Ministry of Health, Labour and Welfare, the company was selected as one of the top three companies (certified operators) in all four categories , including "Overall" and three sub-categories, proving that high service quality is translating into results.

The slide above shows the trends in "Number of CPs (Career Partners)" and "Productivity," the growth engines of the Career business. This data demonstrates the company's organizational management capabilities and the success of its technology utilization .

The quarterly average number of CPs was 1,650 (+6% YoY) , with 225 new CPs hired in Q1 (compared to 175 in the same period last year, +50 YoY) . In typical recruitment businesses, a higher ratio of new hires often leads to a temporary decline in overall organizational productivity due to training burdens and skill gaps. However, the company achieved productivity of ¥8.1 million (+2% YoY) , outperforming the same period last year despite being in a phase of mass hiring and training.

Notably, unlike in previous years, the company is staggering CP hiring periods and strengthening recruitment in the DR (Direct Recruiting) area. As this causes fluctuations in the timing of personnel and recruitment expenses, EBITDA growth in the Career segment is expected to be limited from Q2 onwards ( full-year planned EBITDA growth is -3% ).

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3. Elderly Care & Disability Welfare Management Support Segment: Building a SaaS Revenue Model

This segment, which provides the management support cloud service "Kaipoke" for elderly care providers and "Kabenashi Cloud" for disability welfare, combines high recurring revenue characteristics with strong growth potential. Q1 revenue was ¥3.474 billion (+9% YoY) , and EBITDA was ¥1.401 billion (+6% YoY) .

The primary drivers of revenue growth are the steady increase in the customer base (number of members) for Kaipoke and Kabenashi Cloud, as well as the expanded use of factoring services and paid optional services such as tablets and smartphones.

The slide above lists the long-term trends of key stock indicators in this segment. From this, one can clearly read the company's track record of growth as a SaaS business and the robustness of its revenue structure.

Specifically, as the following figures show:

• Number of customer corporations at quarter-end : 27,600 (+8% YoY)
• Number of customer facilities at quarter-end : 62,300 (+9% YoY)
• ARPA (Average Revenue Per Account) : ¥121,000 (+4% YoY)
• ARR (Annual Recurring Revenue) : ¥13.5 billion (+13% YoY)

It is noteworthy that not only is the customer base expanding, but ARPA is also steadily rising due to feature additions and initiatives to increase unit prices. As a result, ARR—the culmination of stock revenue with extremely low churn rates—has reached ¥13.5 billion. Currently, the company is investing in strengthening the sales and marketing structure for "Kabenashi Cloud," which has temporarily capped EBITDA growth at +6%. However, this is a rational strategy as an upfront investment for future ARR expansion.

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4. Status of the Overseas Segment and Business Restructuring

In the Q1 overseas segment, revenue was ¥1.595 billion (+4% YoY) , and EBITDA was -¥208 million (compared to -¥276 million in the same period last year) , achieving year-on-year revenue growth and a narrowing of the operating loss .

Regarding business-specific trends, the Medical Platform business was affected by reduced marketing budgets from some clients, while the Global Career business continued to face headwinds due to declining cross-border mobility caused by the worsening situation in the Middle East. Nevertheless, the loss margin is on a narrowing trend due to the promotion of company-wide profit structure improvement activities.

For the overseas business, rigorous verification regarding capital efficiency and future growth potential is being conducted by the "Corporate Value Enhancement Committee" mentioned below, and restructuring the business portfolio—including continuation, downsizing, or withdrawal—is being discussed as a top priority.

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5. Launch of the Corporate Value Enhancement Committee and Roadmap for Structural Reform

To improve capital efficiency and maximize sustainable corporate value, the company established the "Corporate Value Enhancement Committee" in July 2026, composed of internal and external directors. The committee is divided into the following four working groups (WGs) and is promoting company-wide reform with the help of objective external advisors:

1. WG1: Business Portfolio
   • Challenge : Distinguishing between businesses that require capital/talent investment and those that need review, and reallocating resources.
   • Progress : While prioritizing the decision on whether to withdraw from or downsize overseas businesses, the company has already decided on and completed the withdrawal of several non-core businesses during Q1 (nursing scholarship information site "Nursing Scholarship Navi," elderly care/frailty prevention projects for local governments, and DR service for therapists "JOB NOTE").
2. WG2: Growth Strategy
   • Challenge : Refining strategies for AI utilization in the Career segment, and revenue/profit growth for DR and SaaS.
   • Initiatives : Improving productivity through AI in the Career business, considering entry into foreign worker recruitment and spot work businesses, and price revisions and expansion into the disability welfare sector for SaaS.
3. WG3: Management Structure & Governance
   • Challenge : Building a management execution system with objective decision-making and discipline.
   • Progress : Refreshed the Board of Directors at the June 2026 General Meeting of Shareholders by appointing six directors, including four new external directors. A CFO is scheduled to take office in August 2026, significantly strengthening the executive structure.
4. WG4: IR & Capital Markets
   • Challenge : Redesigning capital efficiency and return policies, and reconstructing market valuation.
   • Initiatives : Expanding KPI disclosure from Q1, conducting institutional investor surveys, and considering optimal capital structure, capital allocation, and shareholder return policies.

Regarding the future disclosure schedule , the company plans to disclose the committee's progress during the Q2 and Q3 earnings announcements, and intends to disclose a "New Medium-Term Management Plan" and growth roadmap reflecting the verification results by the Q4 FY2027 earnings announcement (around the end of April 2027) at the latest .

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Conclusion and Points to Watch

SMS's Q1 FY2027 earnings showed solid results with revenue and operating profit growth , supported by demand for recruitment and SaaS in the core medical and elderly care sectors.

The key points to watch for future corporate value enhancement are summarized in the following three areas:

1. Balance between CP hiring expansion and AI integration : Can the company absorb the cost increase associated with adding CPs in recruitment through productivity gains from AI, and keep the business on a long-term growth trajectory?
2. Building the SaaS model : Can the company maintain or accelerate the growth pace from the current ¥13.5 billion ARR by retaining the customer base and increasing ARPA for Kaipoke and Kabenashi Cloud?
3. Speed of business portfolio review : How quickly can the company execute the reorganization of low-profit/non-core areas, including overseas businesses, through the Corporate Value Enhancement Committee, and lead this into the announcement of the new medium-term plan in April 2027?

As an infrastructure company for the medical, nursing, and welfare sectors in a super-aging society, the focus will be on how the dual engines of business growth and governance reform function together.