Fixstars (3687) FY2026 Q1 Earnings Report

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Executive Summary

FY2026 Q1 resulted in higher revenue but lower earnings, with growth investments in the SaaS Business and an increase in SG&A expenses placing short-term pressure on profitability. Revenue was ¥25.3B (¥23.2B in the prior year, YoY +9.3%), Operating Income was ¥6.6B (¥7.4B in the prior year, YoY -10.1%), Ordinary Income was ¥6.6B (¥7.3B in the prior year, YoY -9.5%), and Net Income was ¥4.7B (¥4.7B in the prior year, YoY -0.9%). The primary drivers of revenue growth were the rapid expansion of the SaaS Business (YoY +84.4%) and steady growth in the Solution Business, while the primary cause of lower earnings was the sharp increase in the SG&A ratio (29.1%, +620bp year on year).

Factors Affecting Performance

【Revenue】Revenue was ¥25.3B, representing a year-on-year increase of +9.3%. The core Solution Business generated ¥23.7B in revenue (93.0% of total revenue), up +6.0% YoY, while the SaaS Business generated ¥2.2B (7.0% of total revenue), surging +84.4% YoY. As a result, the SaaS mix in the business portfolio increased from 4.1% in the prior year. By revenue recognition classification, revenue recognized at a point in time increased +18.8% and led growth, while revenue recognized over time declined -7.9%, indicating some variation in revenue quality.

【Profit and Loss】The gross profit margin was 55.2%, improving 40bp from 54.8% in the prior year. However, SG&A expenses increased +38.4% year on year to ¥7.4B, causing the SG&A ratio to rise to 29.1% (+620bp year on year). Consequently, the Operating Income margin declined to 26.2% (-560bp year on year), and Operating Income was ¥6.6B (YoY -10.1%). The Solution Business segment profit margin declined slightly to 34.9% (-220bp year on year) but remained at a high level, while the SaaS Business segment loss widened from ¥0.9B to ¥1.6B. Because ¥0.5B in headquarters relocation costs was recorded as an extraordinary loss, Profit Before Tax diverged from Ordinary Income; however, the rate of decline in Net Income (-0.9%) remained smaller than the rate of decline in Operating Income. In conclusion, revenue increased while earnings declined, as the high profitability of the core business absorbed the widening losses from SaaS investment and the increase in SG&A expenses.

Segment Analysis

The Solution Business generated revenue of ¥23.7B and segment profit of ¥8.3B, with a profit margin of 34.9%, making it the core contributor to company-wide earnings. Although the profit margin declined from 37.1% in the year-ago period, the business continues to maintain a highly profitable structure. Meanwhile, the SaaS Business achieved rapid growth, with revenue of ¥2.2B (YoY +84.4%), but its segment loss widened to ¥1.6B (¥0.9B in the prior year), resulting in a loss margin of 91.1% (deteriorating from 89.8% in the prior year). The fact that revenue scale expansion has not translated into improved profitability is one of the primary causes of the decline in the company-wide profit margin during the quarter.

Key Financial Indicators

【Profitability】The Operating Income margin was 26.2% (-560bp year on year), the Net Income margin was 17.7%, and the gross profit margin was 55.2% (+40bp year on year). Thus, while top-line profitability remained high, the margin at the operating level declined due to the increase in SG&A expenses. 【Cash Quality】Cash and deposits were ¥47.6B, accounting for 49.9% of total assets. The combined balance of trade receivables of ¥26.3B and contract assets of ¥3.7B was largely unchanged from the year-ago period; however, annualized DSO was 95 days, exceeding the 60-day benchmark and confirming a lengthening collection cycle. 【Investment Efficiency】Annualized ROE was 22.5% and remained high due to the combination of the Net Income margin, total asset turnover, and low financial leverage (Equity Ratio of 87.2%). EPS was ¥13.93 (¥14.26 in the prior year, YoY -2.3%), and BPS was ¥252.06. 【Financial Soundness】With an Equity Ratio of 87.2%, current assets of ¥82.7B against current liabilities of ¥12.1B, and an extremely high current ratio, fixed liabilities were minimal at ¥0.2B. Dependence on liabilities is low, and the capital structure is conservative.

Cash Flow Analysis

Because the financial statements for this period do not include a cash flow statement, cash movements are analyzed based on balance sheet trends. Cash and deposits declined to ¥47.6B from ¥51.8B in the prior year, but still amounted to approximately 3.9 times current liabilities of ¥12.1B, indicating ample short-term financial capacity. Trade receivables were ¥26.3B, down 6.4% from ¥28.2B in the prior year, while contract assets increased 67.9% from ¥2.2B to ¥3.7B, indicating a change in the composition of billing and acceptance timing. Inventories were small at ¥0.4B, with receivables and contract assets representing the primary working capital burden. Property, plant and equipment increased +30.1% year on year to ¥3.4B, suggesting progress in growth investments. Overall, the company has abundant funds, but the progress of collections from receivables and contract assets will determine future cash efficiency.

Quality of Earnings

Non-operating income and expenses had almost no impact during the period, and the change in earnings from the operating level to the ordinary income level was limited. On the other hand, ¥0.5B in headquarters relocation costs was recorded as an extraordinary loss, which should be evaluated separately from Operating Income and Ordinary Income as a temporary factor. Profit Before Tax was ¥6.2B, diverging from Ordinary Income of ¥6.6B solely by the amount of the extraordinary loss. The smaller decline in Net Income (-0.9%) than in Operating Income (-10.1%) was affected by the difference from the prior year's corporate income tax burden (effective tax rate). Comprehensive income was ¥4.8B, and the difference from Net Income attributable to owners of the parent of ¥4.5B was primarily attributable to foreign currency translation adjustments and valuation differences on securities. The divergence was limited, and no significant concerns regarding earnings quality were identified.

Earnings Forecast and Guidance

There were no revisions to the full-year company forecasts or dividend forecasts as of the quarter, which are Revenue of ¥103.0B, Operating Income of ¥26.0B, Ordinary Income of ¥26.0B, EPS of ¥49.60, and dividends of ¥18.00. Q1 progress was approximately 24.6% for Revenue, 25.5% for Operating Income, and 25.5% for Ordinary Income, broadly in line with the standard Q1 progress rate of 25%. Since the full-year Operating Income forecast represents only YoY +0.8% growth, controlling the SG&A ratio and reducing losses in the SaaS Business over the remaining three quarters will be key to achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥18.00 per share, with no revision as of the quarter. Based on the full-year forecast EPS of ¥49.60, the Payout Ratio is approximately 36.3%, remaining below 60%. Quarterly Net Income attributable to owners of the parent of ¥4.5B represented 28.1% progress against the full-year forecast of ¥16.0B, indicating steady progress in earnings available as a source of dividends. The financial foundation of cash and deposits of ¥47.6B and an Equity Ratio of 87.2% also supports the sustainability of dividends. Treasury shares of ¥12.6B (equivalent to approximately 13.2% of net assets) are held, but no additional purchases during the quarter have been confirmed.

Risk Factors

1. Expansion of SaaS Business losses: While the SaaS Business achieved rapid revenue growth of YoY +84.4%, its segment loss widened from ¥0.9B to ¥1.6B. If growth investments continue to weigh on earnings, they may constrain the recovery of the company-wide profit margin.

2. Sharp increase in the SG&A ratio: SG&A expenses increased +38.4% YoY, substantially exceeding the 9.3% revenue growth rate. The SG&A ratio rose to 29.1% (+620bp year on year), and whether this increase represents one-time growth investment or a structural increase in fixed costs will determine future margin trends.

3. Lengthening receivables collection cycle: Annualized DSO was 95 days, substantially exceeding the 60-day level. Contract assets also increased +67.9% year on year, and progress in collection and billing processes during the revenue expansion phase may affect working capital efficiency.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company's Operating Income margin and Net Income margin both substantially exceed the industry median, demonstrating profitability at the upper end of the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, placing the company around the middle of the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin of 26.2%, annualized ROE of 22.5%, and gross profit margin of 55.2% all remained at high levels, confirming a structure in which the strong profitability of the core Solution Business supports company-wide earnings.

2. Rapid revenue growth in the SaaS Business (YoY +84.4%) coexists with expanding segment losses. Whether scale expansion will lead to improved profitability will be a key point for observing future structural changes.

3. The conservative financial structure, characterized by cash and deposits of ¥47.6B and an Equity Ratio of 87.2%, supports options for growth investment and shareholder returns. At the same time, the lengthening collection cycle, reflected in annualized DSO of 95 days, requires monitoring from a cash-efficiency perspective.

Theoretical Share Price (Reference Value)

Sensitivity: ¥326–¥346 at cost of equity ±1%, and ¥334–¥339 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute forecasts of the market share price or recommendations for specific investment actions, nor do they predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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