Consolidated Financial Result(For the 3-month period ended March 31, 2020)
April 28, 2020
Company name:
Address:
Stock exchange listings:
Code number :URL:
Representative:
Contact:

SIOS Corporation
2-12-3 Minami Azabu, Minato-ku, Tokyo 106-0047 JapanTokyo Stock Exchange (TSE)3744
https://www.sios.com/Nobuo Kita, Representative Director
Tokutaro Kobayashi, S.V.P. of Finance & Accounting
Phone: +81-3-6401-5111
Scheduled date for filing of quarterly financial report: May 14, 2020
(Note) All figures in the financial statements are rounded down to the nearest millionth.
‘-‘ indicates a loss or negative figure.

1. Consolidated results (January 1, 2020 through March 31, 2020)(1) Consolidated business results
Net sales
Million yen(% of change from previous first quarter)

Operating income%Ordinary income

Million yen%

Million yen

141
91

54.2
-58.8

136
106

3-month period(2020/3)
3,979
12.8
3-month period(2019/3)
3,529
4.9
(Note)Comprehensive income
As of Mar.31, 2020: 66 million yen/ 99.9%

Million yen

27.5-52.5%

7334

112.4
-75.0

As of Mar. 31, 2019: 33 million yen/ -66.6%

Net income per share- Basic

Net income per share- Diluted

Yen

Yen

3-month period(2020/3)
3-month period(2019/3)

Net income%

8.49
4.00-(2) Consolidated financial position
Total assets

Net assets

Equity ratio

Million yen

Million yen%

1,333
1,308

23.3
23.7

3-month period(2020/3)
5,535
FY2019
5,332(Reference) Equity
As of Mar. 31, 2020: 1,288 million yen

As of Dec. 31, 2019: 1,264 million yen

2. Cash dividends
Record Date

End of Q1

InterimDividend per share
End of Q3

Year-end

AnnualYen

YenYen

Yen%FY2019-FY2020-FY2020 (expected)

0.00

-

5.00

5.00

0.00

-

5.00

5.00

(Note) Revisions to recent dividend forecast: None

3. Forecast of consolidated results for FY2020 (January 1, 2020 through December 31, 2020)
Net sales
Million yen

Operating income%

Million yen

FY202014,3004.5(Note) Revisions to recent business forecast: None80

Ordinary income(% of change from previous year)
Net income
Net income
per share%

Million yen%

Million yen%

45.6

100

3.9

40

23.6-1-Yen

4.61

4. Others(1) Reclassification of significant subsidiaries during the period (Reclassification due to change in scope of consolidation): None
(2) Application of special accounting methods for the preparation of the consolidated quarterly financial statements: None
(3) Change in accounting policies, accounting estimates and restatement(i) Change in accounting policies associated with revision of accounting standards: None(ii) Change arising from other factors: None(iii) Change in accounting estimates:None(iv) Restatement:None(4) Number of outstanding shares (common shares)(i)

Number of outstanding shares(including treasury stock)(ii) Number of treasury stock(iii) Average number of outstanding shares(3-month period)First quarter of
FY2020First quarter of
FY2020First quarter of
FY20208,874,400 shares

FY20198,874,400 shares

205,768 shares

FY2019205,768 shares

8,668,632 sharesFirst quarter of
FY20198,653,204 shares

Explanation about proper use of forecasts of consolidated financial results and other special notes
1.

Information Regarding the Audit Review Procedure: This report is outside the scope of the procedures for quarterly review offinancial statements as required under the financial instruments and Exchange Act of Japan. The aforementioned procedures have notbeen completed as of the time of disclosure of this document.

2.

Net income per share was calculated by the number of outstanding shares (excluding treasury stocks) at the end of fiscal year.

3.

Forecasts announced by the company referred to above were prepared based on management’s assumption with information
available at this time and therefore involve known and unknown risks and uncertainties. Please note such risks and uncertainties may
cause the actual results to be materially different from the forecasts.

4.

This information to above is an UNOFFICIAL English-language translation of the original Japanese-language version. The format
and contents of this document are defined by the requirements of the Tokyo Stock Exchange’s 2nd Section.
To the extent that there are discrepancies between this translation and the original version, the original version shall be definitive.

-2-

Table of Contents of the Attached Document

1. Qualitative Information on Consolidated Results ............................................................................................. 4(1) Results of Operations ................................................................................................................. 4(2) Financial Position ....................................................................................................................... 5(3) Forward-looking Statements Including Consolidated Business Forecasts ............................ 53. Consolidated Financial Statements ................................................................................................................... 6(1) Consolidated Balance Sheet ....................................................................................................... 6(2) Consolidated Statements of Income and Comprehensive Income .......................................... 8(3) Notes on Consolidated Financial Statements......................................................................... 10Notes on Going Concern Assumption ........................................................................................ 10(Notes on significant changes in the amount of shareholders’ equity) ................................... 10Segment Information.................................................................................................................. 11-3-1. Qualitative Information on Consolidated Results(1) Results of OperationsOverview of consolidated business performance for the three months ended March 31, 2020 (Q1 2020)
The SIOS Group operates in the IT industry in which companies have been investing at an accelerated pace in implementing
digital transformation1, including transitioning to cloud environments as well as streamlining and automating business processing.
Under this business environment, the Group offers value-added products and services to assist corporate clients in overcoming theirbusiness challenges.
As a result of all these efforts, the Group achieved consolidated business results by segment for the three months ended March 31,
2020, as follows:i.

Open System Infrastructure Business Segment
The Group achieved a solid increase in sales of its core LifeKeeper2, thanks to its robust perpetual licensing business in Japan,

which more than offset its declining sales in the Americas and Europe. In addition, sales of Red Hat Enterprise Linux3 and othersoftware products sourced from Red Hat Inc.4 as well as revenues from the OSS5 support business and OSS-related products
increased over the same period the previous fiscal year. As a result, net sales in this segment jumped 15.5% year on year to 2,343million yen.
The segment income was down 11.4% year on year to 55 million yen, due primarily to additional R&D spending incurred toupgrade LifeKeeper.
ii. Application Business Segment
Revenues from software applications for MFPs6 declined. This was because an increasing number of corporate clients switchedfrom a perpetual licensing model to a subscription model7 for these applications. Sales of the management support system tofinancial institutions increased, as revenues from projects whose orders had been received in the second half of the previous fiscal
year were recognized during the quarter under review. In addition, revenues from the provision of support for system development
and implementation were strong, especially to educational institutions. As a result, net sales in this segment were up 9.0% year onyear to 1,636 million yen.
Income from the provision of support for system development and implementation as well as from sales of the management
support system to financial institutions showed a year-on-year increase. In particular, income from the provision of support forsystem development and implementation to financial institutions was up from the previous fiscal year due in part to a higher grossprofit margin resulting primarily from reduced subcontract expenses and in part to the absence of unprofitable projects that had
affected negatively the profitability of this segment the previous fiscal year. As a result, the segment income soared 194.9% year on
year to 86 million yen.
The Group's combined net sales of these two segments jumped 12.8% year on year to 3,979 million yen, which marked record
quarterly sales for the Group.
The Group's consolidated operating profit surged 54.2% year on year to 141 million yen, due to a strong performance in theApplication Business Segment. The Group posted an ordinary profit of 136 million yen, up 27.5% year on year, and a profit of 73
million yen attributable to owners of parent, up 112.4%.
The Group’s key management metrics EBITDA (the sum of operating profit, depreciation, and amortization of goodwill) andROIC (ratio obtained by dividing operating profit after tax by the sum of shareholders’ equity and interest-bearing debts) are as
follows for the three months ended March 31, 2020:
EBITDA: 164 million yen, up 44.8% year on year
ROIC (annualized): 17.7%, compared with 10.9% for the same period the previous fiscal year
1.

Digital transformation
A process in which a company uses data and digital technology to transform its products, services, andbusiness models to more effectively respond to constantly changing business environments and deliver
greater value to customers and society as well as to transform its business processes and organizational-4-structure and culture to gain greater competitive advantage.
2.

LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.

3.

Red Hat Enterprise LinuxLinux OS developed by Red Hat, Inc., a provider of open-source solutions.

4.

Red Hat, Inc. Related Items
Linux OS product developed by Red Hat, Inc., a provider of open source solutions.

5.

OSS
Abbreviation for open source software, Software whose source code, which is the fundamental component of the program, ismade available for free and can be used, modified, and redistributed.

6.

Software applications for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into oneunit. SIOS develops, markets, and updates Quick Scan and Speedoc, document management software applications running on
an MFP.

7.

Subscription model
A business model that charges customers a recurring monthly or annual fee to access a software product or service.

(2) Financial Positioni.

AssetsCurrent assets amounted to 4,683 million yen as of March 31, 2020, up 4.5% from the end of the previous fiscal year, reflecting an
increase of 395 million yen in notes and accounts receivable trade.
Non-current assets amounted to 852 million yen, up 0.0% from the previous fiscal year-end, reflecting an increase of 15 million
yen in software and other intangible assets, and a decrease of 11 million yen in property, plant and equipment.
As a result, total assets amounted to 5,535 million yen, up 3.8% from the previous fiscal year-end.

ii.

Liabilities
Current liabilities amounted to 3,560 million yen, up 6.1% from the previous fiscal year-end, reflecting an increase of 119 million
yen in advances received and an increase of 88 million yen in accounts payable trade.
Non-current liabilities amounted to 641 million yen, down 3.9% from the previous fiscal year-end, reflecting a decrease of 30
million yen in long-term loans payable.
As a result, total liabilities amounted to 4,202 million yen, up 4.4% from the previous fiscal year-end.

iii.

Net assets

Total net assets amounted to 1,333 million yen as of March 31, 2020, up 1.9% from the previous fiscal year-end,
reflecting an income of 73 million yen attributable to owners of parent for the quarter under review.
(3) Forward-looking Statements Including Consolidated Business Forecasts
The consolidated business forecasts for the fiscal year ending December 31, 2020, remain unchanged from as stated inConsolidated Financial Results for the Fiscal Year Ended December 31, 2019, announced on February 5, 2020.
The Group has been progressively implementing flexible work arrangements for employees, including allowing teleworking andflexible work hours, since February 18, 2020, to reduce the risk of contracting COVID-19 inside and outside the Group and protect
the safety of employees. Since April 7, 2020, when the Japanese government declared a state of emergency over the COVID-19
outbreak, all our employees have switched to teleworking. The group-wide implementation of teleworking has not had a material
impact on the Group's business operations; however, a prolonged duration of the COVID-19 outbreak might adversely affect theGroup's business performance going forward.
While net sales as well as operating profit and other income were on target for the quarter under review, we will announce
promptly an update on consolidated business forecasts for the fiscal year ending December 31, 2020, if any material change shouldarise.

-5-3. Consolidated Financial Statements(1) Consolidated Balance Sheet(In thousands of yen)
December 31, 2019

March 31, 2020

AssetsCurrent assets
Cash and deposits

2,266,069

2,131,096

1,754,762
47,536

2,149,810
31,183

181,936
229,853

176,653
194,556

-200

-200

4,479,958

4,683,101

Buildings, net
Other, net

112,31274,480106,585
68,584

Total property, plant and equipment

186,792

175,170

Notes and accounts receivable-trade
Work in process
Advance payments- trade
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment

Intangible assets
Goodwill

786

571

39,720184,413

108,162
131,956

1,916

1,882

226,835

242,573

Investment securities
Net defined benefit asset

137,073
43,741

137,680
39,322

Guarantee deposits
Other

207,904
55,233

205,41057,503

Software
Software in progress
Other
Total intangible assets
Investments and other assets

Allowance for doubtful accounts-5,071-5,071

Total investments and other assets

438,881434,845

Total non-current assets
Total assets-6-

852,509852,589

5,332,468

5,535,691

(In thousands of yen)
December 31, 2019

March 31, 2020

Liabilities
Current liabilities
Accounts payable-trade856,680

945,305

Short-term loans payable
Current portion of long-term loans payable

50,000132,303

50,000128,971

Lease obligations
Income taxes payable

7,156
19,6196,813
44,787

Advances received
Provision for bonuses

1,842,348
34,262

1,961,510
17,995326
413,077

671
404,488

3,355,774

3,560,544

Long-term loans payable
Net defined benefit liability

413,620
230,539

382,840
236,660

Lease obligations
Long-term deposits received

11,362
11,632

9,874
11,632

Provision for loss on order received
Other
Total current liabilities
Non-current liabilities

Other
Total non-current liabilities
Total liabilities

750754

667,905

641,761

4,023,679

4,202,306

1,481,520
82,963

1,481,520
113,212

Net assets
Shareholders’ equity
Capital stock
Retained earnings-87,198-87,198

1,477,284

1,507,534

Valuation difference on available-for-sale securities
Foreign currency translation adjustment-3,961-208,398-7,274-211,746

Total accumulated other comprehensive income-212,360-219,021

Treasury shares
Total shareholders’ equityAccumulated other comprehensive income

Subscription rights to shares
Total net assets
Total liabilities and net assets-7-

43,86344,872

1,308,788

1,333,384

5,332,468

5,535,691

(2) Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Income
For three months ended March 31(In thousands of yen)Three months ended March 31,
2019

Three months ended March 31,2020

Net sales

3,529,053

3,979,744

Cost of sales

2,443,768

2,784,278

Gross profit

1,085,285

1,195,466

Selling, general and administrative expenses993,297

1,053,612

Operating profit

91,987

141,853

Interest income
Foreign exchange gains

3,218
3,524

2,939
5,611

Loss on valuation of derivatives
Share of profit of entities accounted for using equity
method
Other

4,099

―

3,695

―

1,438

1,089

Total non-operating income

15,9759,640Interest expenses
Loss on valuation of derivatives
Share of profit of entities accounted for using equity
method
Other

1,001
―

837
646

―

12,3710

1,269

Total non-operating expenses

1,001

15,125

106,960

136,368

Gain on reversal of subscription rights to shares

450―

Total extraordinary income

450―

Loss on valuation of golf club membership―

268

Total extraordinary losses―

268

Profit before income taxes

107,410

136,100

Income taxes-current
Income taxes-deferred

56,235
16,52455,812
6,695

Total income taxes

72,76062,508

Profit34,65073,592

Profit attributable to owners of parent

34,65073,592Non-operating income

Non-operating expenses

Ordinary profit
Extraordinary income

Extraordinary losses-8-Consolidated Statements of Comprehensive Income
For three months ended March 31(In thousands of yen)Three months ended March 31,
2019

Three months ended March 31,
2020

34,65073,592

ProfitOther comprehensive income
Foreign currency translation adjustment
Valuation difference on available-for-sale securities
Share of other comprehensive income of entities
accounted for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:Comprehensive income attributable to owners ofparent-9--5-3,359-1,012-3,312-146

11-1,163-6,661

33,486

66,931

33,486

66,931

(3) Notes on Consolidated Financial Statements
Notes on Going Concern Assumption
Not applicable(Notes on significant changes in the amount of shareholders’ equity)
Three months ended March 31, 2019.
1. Dividend payments
Not applicable
2. Dividends for which the record date fell in this period with an effective date falling after the last day of this period
Not applicable
3. Significant changes in shareholders' equity
As per the resolution adopted at the 22nd general meeting of shareholders held on March 28, 2019, and pursuant to Article 452 ofthe Companies Act of Japan, the Company, on the same date, reduced other capital surplus by 480,279,000 yen and transferred it toretained earnings brought forward to dispose deficit.
There was no significant change in the total amount of shareholders’ equity.
Three months ended March 31, 2020
1. Dividend payments
The following resolution was adopted at the Board of Directors' Meeting held February 21, 2020:
Matters concerning dividends on common stocks
i. Total amount of dividends: 43,343,000 yen
ii. Source of dividends: Retained earningsiii. Dividend per share: 5.00 yen
iv. Record date: December 31, 2019v. Effective date: March 30, 2020
2. Dividends for which the record date fell in this period with an effective date falling after the last day of this period
Not applicable
3. Significant changes in shareholders' equity
Not applicable-10-

Segment Information【Segment Information】
I Three months ended March 31, 2019
1. Information regarding the amount of net sales and profit by reportable segment(In thousands of yen)
Reportable segment
Open systeminfrastructurebusiness

Adjustments

Application
business

Total

Amount recordedin quarterly
consolidated
statements ofincome*Net sales
Sales to external customers
Intersegment
transferssales

2,028,054

1,500,938

3,528,993

60

3,529,053―

226226-226―

2,028,054

1,501,165

3,529,220-166

3,529,053

62,66629,261

91,92760

91,987

andTotalSegment profit

Note: The total amount of segment profit is equal to operating profit recorded in the quarterly consolidated statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales)by region is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For three months ended March 31, 2019
(In thousands of yen)Japan
3,297,351

Americas152,015

EuropeOther regions

63,913

15,772

Total
3,529,053

Note: Sales are classified by country or region in which customers are located.
2. Information regarding loss on impairment of non-current assets or goodwill by reportable segment
Not applicable-11-II

Three months ended March 31, 2020

1. Information regarding the amount of net sales and profit by reportable segment(In thousands of yen)Reportable segment
Open systeminfrastructurebusiness

Adjustments

Application
business

Total

Amount recordedin quarterly
consolidated
statements ofincome*Net sales
Sales to external customers
Intersegment
transfers

sales

2,343,196

1,636,487

3,979,684

60

3,979,744

―

1,290

1,290

-1,290―2,343,196

1,637,778

3,980,975-1,2303,979,744

55,501

86,291

141,79360

141,853

andTotal
Segment profit

Note: The total amount of segment profit is equal to operating profit recorded in the quarterly consolidated statements of income.
Supplementary Information
Information by regionIn addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales)by region is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For three months ended March 31, 2020
(In thousands of yen)Japan
3,814,897

Americas116,817

EuropeOther regions

31,60816,421

Total
3,979,744

Note: Sales are classified by country or region in which customers are located.
2. Information regarding loss on impairment of non-current assets or goodwill by reportable segment
Not applicable-12-