Consolidated Financial Result(For the 3-month period ended March 31, 2019)
April 26, 2019
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, 2019
(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, 2019 through March 31, 2019)(1) Consolidated business results
Net sales
Million yen(% of change from previous first quarter)

Operating income%%Million yen

91
223

-58.8
83.8

106
225

3-month period(2019/3)
3,529
4.9
3-month period(2018/3)
3,363
1.3(Note)Comprehensive income
As of Mar.31, 2019: 33 million yen/ -66.6%

Net income%

Million yen

-52.5
78.2%

34138

-75.0
133.8

As of Mar. 31, 2018: 100 million yen/ 208.3%

Net income per share- Basic

Net income per share- Diluted

Yen

Yen

4.00
16.08

16.02

3-month period(2019/3)
3-month period(2018/3)

Ordinary income

Million yen(2) Consolidated financial position
Total assets

Net assets

Equity ratio

Million yen

Million yen%

3-month period(2019/3)
5,512
1,403
24.7
FY2018
5,330
1,359
24.8
(Reference) Equity
As of Mar. 31, 2019: 1,362 million yen
As of Dec. 31, 2018: 1,319million yen(Note) “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) has been
applied from the start of the first quarter of fiscal 2019, the year ending December 31, 2019. “Total assets” and “Equity ratio” for theprevious consolidated fiscal year are presented following retroactive application of this accounting standard.

2. Cash dividends
Record Date

End of Q1

InterimDividend per share
End of Q3

Year-end

Annual

Yen

Yen

Yen

Yen%

FY2018-FY2019-

FY2019 (expected)

0.00

-

0.00

0.00

0.00

-

5.00

5.00

(Note) Revisions to recent dividend forecast: None

3. Forecast of consolidated results for FY2019 (January 1, 2019 through December 31, 2019)
Net sales
Million yen

Operating income%

Million yen

FY201913,2003.1(Note) Revisions to recent business forecast: None200%-31.2-1-Ordinary income
Million yen

210%

-32.4

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

140%

-38.0

Yen

16.18

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
FY2019First quarter of
FY2019First quarter ofFY2019

8,874,400 shares

FY20188,874,400 shares

205,768 shares

FY2018224,268 shares

8,653,204 sharesFirst quarter ofFY2018

8,627,859 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 ............................ 5
3. 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) ................................... 10(Additional information) ............................................................................................................ 10Segment Information.................................................................................................................. 11-3-

1. Qualitative Information on Consolidated Results(1) Results of Operations
Overview of consolidated business performance for the three months ended March 31, 2019 (Q1 2019)
In the IT industry in which the SIOS Group operates, waves of technological innovation have been sweeping across the market inquick succession, and one new business opportunity after another has been presenting itself. Under the medium-term business planfor FY 2019-2021, the Group, in an effort to make its business foundation more solid, has been investing in R&D and implementing
other strategic initiatives to become an influential player poised to lead the IT industry.
During Q1 2019, DataKeeper1, our business-continuity solution, received a Cloud Computing Excellence Award from the U.S.based Cloud Computing Magazine. In addition, we expanded the scope of our service offerings. For instance, we developed theSIOS Authn Module for Azure AD, a software application that enables highly secure authentication provided by Azure Active
Directory2 to work in the environment offered by the Academic Access Management Federation in Japan 3, and launched anintegration service built around the application. Furthermore, in the United States, we started to offer business-continuity solutionsfor SAP4, optimized for the AWS5 environment and designed to work on AWS Solution Space.
With the implementation of these initiatives and efforts, the Group’s consolidated business results by segment for Q1 2019 are asfollows:i.

Open System Infrastructure Business Segment
The Group achieved steady growth of sales of business-continuity solutions, primarily driven by the strong sales of LifeKeeper 6,

which is one of our core products, and helped by the addition of products offered by ThirdWare Inc., which the Company acquired inDecember 2018. In addition, Red Hat Enterprise Linux7 and other software products sourced from Red Hat Inc.8 enjoyed robust
sales. As a result, net sales in this segment jumped 9.1% year on year to 2,028 million yen.
The segment profit soared by 328.7% to 62 million yen, thanks to the strong sales of business-continuity solutions explained
above.
ii. Application Business Segment
We saw an increase in sales of software applications for multifunction printers (MFPs) 9 as well as in revenues from the Gluegent
series10. In contrast, sales of management support systems to financial institutions declined from the same period the previous year.
As a result, net sales in this segment were down 0.3% year on year to 1,500 million yen.
The segment profit fell 86.0% year on year to 29 million yen, due to weak sales of management support systems to financial
institutions and a delay in an on-going project to provide support for system development and implementation to a financialinstitution.
With these two business segments combined, the Group’s consolidated net sales for Q1 2019 were up 4.9% year on year to arecord 3,529 million yen.
The Group’s consolidated operating profit was down 58.8% year on year to 91 million yen, primarily due to a decrease in segment
profit of the application business. The Group posted an ordinary profit of 106 million yen, which was down 52.5% from the previousyear, and a profit of 34 million yen attributable to owners of parent, down 75.0% year on year.
The Group’s key management metrics EBITDA (the sum of operating profit, depreciation and amortization, and amortization ofgoodwill) and ROIC (ratio obtained by dividing net operating profit after tax by the sum of shareholders’ equity and interest-bearingdebts) are as follows for Q1 2019:
EBITDA: 113 million yen, down 52.9% year on year
ROIC (annualized): 10.9%, as compared with 26.7% the previous year
1.

DataKeeper
Software that provides real-time data replication for disaster protection

2.

Azure Active Directory
One of the Azure services provided by Microsoft Corporation. It is a cloud-based ID and access management service that
centrally manages access to cloud applications with a single-sign-on.

3.

Academic Access Management Federation in Japan-4-

A federation consisting of colleges and universities that use academic e-resources, such as online journals and document
information databases, and institutions and publishers that provide such e-resources. Members trust rules for coordinatedauthentication established by the Federation to access e-resources provided by multiple sources.
4.

SAP
SAP SE, headquartered in Germany, is one of the leading enterprise software companies in the world. SAP is also the name ofenterprise software offered by SAP SE.

5.

AWS
Amazon Web Services. Cloud services provided by Amazon.com, Inc.

6.

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

7.

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

8.

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

9.

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.

10. Gluegent series
A series of cloud-based enterprise services to achieve greater efficiency in business processes, including Gluegent Gate forcloud-based ID management, Gluegent Apps group scheduler, which adds team schedule management to Google Calendar,and Gluegent Flow, a cloud-based workflow.

(2) Financial Positioni.

AssetsCurrent assets amounted to 4,566 million yen as of March 31, 2019, up 4.2% from the end of the previous fiscal year, reflecting anincrease of 192 million yen in notes and accounts receivable trade.
Non-current assets amounted to 946 million yen, flat from the end of the previous fiscal year, reflecting an increase of 16 million
yen in software in progress and a decrease of 8 million yen in property, plant and equipment.
As a result, total assets were 5,512 million yen, up 3.4% from the end of the previous fiscal year.

ii.

LiabilitiesCurrent liabilities amounted to 3,320 million yen as of March 31, 2019, up 5.3% from the end of the previous fiscal year,
reflecting an increase of 252 million yen in accounts payable trade, a decrease of 40 million yen in advance received, and a decreaseof 20 million yen in provision for bonuses.
Non-current liabilities amounted to 788 million yen, down 3.5% from the end of the previous fiscal year, reflecting a decrease of
33 million yen in long-term loans payable.
As a result, total liabilities were 4,108 million yen, up 3.5% from the end of the previous fiscal year.

iii.

Net assets

Total net assets were 1,403 million yen, up 3.2% from the end of the previous fiscal year, reflecting a profit of
34 million yen attributable to owners of parent for the quarter.
(3) Forward-looking Statements Including Consolidated Business Forecasts
The consolidated business forecasts for the fiscal year ending December 31, 2019 still stands, as net sales as well as operating
profit and all other profit items, on the whole, have been on track to meet the business forecasts for the year announced on February
5, 2019.

-5-3. Consolidated Financial Statements(1) Consolidated Balance Sheet(In thousands of yen)
December 31, 2018

March 31, 2019

AssetsCurrent assets
Cash and deposits

2,138,821

2,204,597

1,613,603
132,680

1,806,151
161,679

155,332
343,735

151,091
242,761

-200

-200

4,383,972

4,566,081

Buildings, net
Other, net

135,774
85,605

129,707
83,640Total property, plant and equipment

221,380

213,347

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

Intangible assets
Goodwill

1,644

1,429

Software
Software in progress

35,79149,931

52,67249,261

Other

2,363

2,251

Total intangible assets

89,730105,614

Investment securities
Net defined benefit asset

309,148
39,574

311,645
41,363

Guarantee deposits
Other

216,956
74,887

211,740
67,558Investments and other assets

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

Total investments and other assets

635,495

627,236

Total non-current assets
Total assets-6-946,606

946,197

5,330,579

5,512,278

(In thousands of yen)
December 31, 2018

March 31, 2019

Liabilities
Current liabilities
Accounts payable-trade576,123

828,340

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

50,000133,116

50,000133,116

Lease obligations
Income taxes payable

6,710
44,951

6,727
51,022

Advances received
Provision for bonuses

1,730,552
39,141

1,689,909
19,00836,864537,125

72,714470,007

3,154,585

3,320,845

Long-term loans payable
Net defined benefit liability

545,923
214,916

512,644
212,678

Lease obligations
Long-term deposits received

15,448
11,632

13,791
11,632

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

Other

28,46737,269Total non-current liabilities

816,388788,016

3,970,973

4,108,862

Capital stock
Capital surplus

1,481,520
472,257

1,481,520－

Retained earnings
Treasury shares-429,287-95,038

79,789-87,198

Total shareholders’ equity

1,429,451

1,474,110

Total liabilities
Net assets
Shareholders’ equity

Accumulated other comprehensive income
Valuation difference on available-for-sale securities

90,49789,485

Foreign currency translation adjustment-200,465-200,616

Total accumulated other comprehensive income-109,967-111,131

40,12140,437

1,359,605

1,403,416

5,330,579

5,512,278

Subscription rights to shares
Total net assets
Total liabilities and net assets-7-(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,
2018

Three months ended March 31,
2019

Net sales

3,363,584

3,529,053

Cost of sales

2,218,393

2,443,768

Gross profit

1,145,190

1,085,285

Selling, general and administrative expenses

921,786

993,297

Operating profit

223,403

91,987

Interest income
Foreign exchange gains

2,971
32,130

3,218
3,524

Reversal of allowance for doubtful accounts
Loss on valuation of derivatives
Share of profit of entities accounted for using equity
methodOther－
4,748

4,099－－

3,695

3,705

1,438

Total non-operating income

43,555

15,975

1,101

1,001

Loss on valuation of derivatives
Other

36,726
3,751－
0

Total non-operating expenses

41,5801,001

225,378

106,960

Gain on reversal of subscription rights to shares－450

Total extraordinary income－450

12,954－Non-operating income

Non-operating expenses
Interest expenses

Ordinary profit
Extraordinary income

Extraordinary losses
Loss on valuation of investment securities

12,954－

Profit before income taxes

212,424

107,410

Income taxes-current
Income taxes-deferred

69,223
4,467

56,235
16,524

Total income taxes

73,691

72,760

Profit138,733

34,650

Profit attributable to owners of parent

138,733

34,650Total extraordinary losses-8-Consolidated Statements of Comprehensive Income
For three months ended March 31(In thousands of yen)Three months ended March 31,
2018

Three months ended March 31,
2019Profit138,733

34,650

Other comprehensive income
Foreign currency translation adjustment-34,642-5-3,879-1,012－-146-38,522-1,163

100,21033,486100,21033,486

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-(3) Notes on Consolidated Financial Statements
Notes on Going Concern Assumption
Not applicable(Notes on significant changes in the amount of shareholders’ equity)
By resolution of the 22nd general meeting of shareholders held on March 28, 2019, and pursuant to Article 452 of the Companies
Act of Japan, the Company, on the same date, reduced other capital surplus by 480,279,000 yen and transferred it to retained
earnings brought forward to dispose deficit. There was no significant change in the total amount of shareholders’ equity.
(Additional information)
The Company adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28,
dated February 16, 2018) at the beginning of Q1 2019 and reclassified deferred tax assets into investment and other assets anddeferred tax liabilities into non-current liabilities.

-10-

Segment Information【Segment Information】
I Three months ended March 31, 2018
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

1,858,750

1,504,803

3,363,554

30

3,363,584

―

―

―

―

―

1,858,750

1,504,803

3,363,554

30

3,363,584

14,617208,756

223,37330

223,403

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 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, 2018
(In thousands of yen)Japan
3,187,778

Americas133,715

EuropeOther regions

24,655

17,435

Total
3,363,584

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-IIThree 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
transfers

sales

2,028,054

1,500,938

3,528,993

60

3,529,053

―

226

226

-226

―

2,028,054

1,501,165

3,529,220-166

3,529,053

62,66629,261

91,92760

91,987

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 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, 2018
(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-12-