Fixstars (3687) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative results for Q2 continued to show higher revenue and operating income from the core business, while the recognition of one-time expenses brought the increase in final profit to an end. Revenue was ¥5.44B (+13.8% YoY), Operating Income was ¥1.64B (+8.8%), and Ordinary Income was ¥1.64B (+9.5%), indicating expansion in the core business. Meanwhile, Net Income (interim net income attributable to owners of the parent) was ¥1.00B (-18.2%), primarily due to the recognition of a ¥0.23B extraordinary loss related to head office relocation expenses. Revenue growth and margin improvement in the Solution Business drove earnings expansion; however, the rate of increase in SG&A expenses (+29.0%) exceeded revenue growth, causing the Operating Margin to decline 140bp YoY.

Factors Affecting Performance

【Revenue】Revenue was ¥5.44B (+13.8% YoY). The Solution Business generated ¥5.07B (+11.2%), accounting for 92.8% of total revenue, while the SaaS Business continued its high growth trajectory, generating ¥0.49B (+35.3%). Both point-in-time recognized revenue and revenue recognized over time increased, indicating that growth was not concentrated in a specific revenue recognition pattern.

【Profit and Loss】Operating Income was ¥1.64B (+8.8%), and the Gross Margin improved to 56.4% (up +170bp from 54.7% in the same period last year). However, the SG&A ratio rose to 26.3%, resulting in an Operating Margin of 30.0% (down -140bp from 31.4% in the same period last year). The Solution Business margin improved to 38.1% (+120bp YoY), but the SaaS Business loss expanded to ¥0.30B (¥0.18B in the previous year), weighing on the consolidated margin. Ordinary Income came in at ¥1.64B (+9.5%), broadly in line with Operating Income, while the recognition of a ¥0.23B extraordinary loss related to head office relocation expenses resulted in Profit Before Tax of ¥1.41B (-6.1%) and Net Income of ¥1.00B (-18.2%). Thus, revenue and income increased at the operating and ordinary income levels, but final profit declined due to one-time expenses.

Segment Analysis

The Solution Business achieved higher revenue and profit, as well as margin improvement, with Revenue of ¥5.07B (+11.2% YoY), Segment Profit of ¥1.93B (+15.0%), and a margin of 38.1% (up +120bp from 36.9% in the previous year), serving as the main pillar of consolidated performance. The SaaS Business achieved high growth in Revenue of ¥0.49B (+35.3%), but its Segment Loss expanded to ¥0.30B (¥0.18B in the previous year), resulting in a loss ratio of 60.7% (deteriorating from 49.5% in the previous year). The difference between the high profitability of the Solution Business and the upfront investment burden of the SaaS Business determines the structure of the consolidated margin, making the timing of the SaaS Business reaching its breakeven point a key focus going forward.

Key Financial Metrics

【Profitability】Operating Margin was 30.0% (31.4% in the previous year), Net Profit Margin was 17.7% (24.9% in the previous year), and Gross Margin was 56.4% (54.7% in the previous year). SG&A expense growth exceeded the improvement in gross profit, resulting in a slight decline in operating-level profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.82B, equivalent to 0.85x Net Income, while OCF/EBITDA remained at 0.48x, with the increase in accounts receivable and contract assets (+¥0.19B) limiting cash conversion.【Investment Efficiency】Annualized ROE was 22.4% (combined with an Equity Ratio of 85.7%, indicating efficient returns with limited reliance on financial leverage), with the high total asset turnover and Net Profit Margin serving as the key sources.【Financial Soundness】The Equity Ratio was 85.7%, Cash and Deposits were ¥5.09B (48.6% of total assets), and Current Assets were ¥9.17B compared with Current Liabilities of ¥1.48B, indicating substantial short-term liquidity.

Cash Flow Analysis

Operating Cash Flow was ¥0.82B (-3.0% YoY). Although OCF was generally generated steadily relative to the level of Profit Before Tax, the increase in trade receivables and contract assets (a ¥0.19B use of funds) was a factor weighing on OCF. Investing Cash Flow was -¥0.26B, of which capital expenditures of ¥0.18B exceeded depreciation and amortization of ¥0.08B, reflecting a phase of growth investment. Free Cash Flow remained positive at ¥0.57B, and capital expenditures during the period were covered within the range of OCF. Financing Cash Flow was -¥0.69B, with dividend payments to the parent company and non-controlling shareholders combined representing the main cash outflow. Overall, cash generation capacity was maintained, although growth in trade receivables somewhat constrained OCF efficiency.

Earnings Quality

Ordinary Income of ¥1.64B was broadly in line with Operating Income of ¥1.64B. The effects of non-operating income of ¥0.01B and non-operating expenses of ¥0.00B were minimal, indicating that earnings are not structurally driven by factors outside the core business. The ¥0.23B gap between Ordinary Income and Profit Before Tax resulted from the recognition of an extraordinary loss related to head office relocation expenses and was a temporary factor different in nature from the minor gain on the sale of investment securities recorded in the same period last year. Accordingly, the -18.2% YoY decline in Net Income was primarily attributable not to deterioration in the core business but to the reversal of the impact of the extraordinary loss. OCF/Net Income of 0.85x and OCF/EBITDA of 0.48x indicate that cash collection is somewhat lagging accounting-based profit, making it necessary to continue monitoring trends in trade receivables and contract assets.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥10.80B (+12.3% YoY), Operating Income of ¥3.10B (+20.2%), and Ordinary Income of ¥3.10B (+20.1%), with both the earnings forecast and dividend forecast having been revised. Cumulative first-half progress rates were 50.4% for Revenue, 52.7% for Operating Income, and 52.9% for Ordinary Income, all around or slightly above the standard 50% level. The full-year forecast Operating Margin is 28.7%, slightly below the 30.0% achieved in Q2, potentially incorporating expense increases in the second half or conservative assumptions.

Shareholder Returns

The dividend at the end of Q2 was ¥0 per share, while the full-year forecast annual dividend is ¥19.00 (dividend forecast revised). The forecast Payout Ratio based on full-year forecast EPS of ¥60.39 is approximately 31.5%. Dividend payments during the period (on a consolidated basis, including payments to non-controlling shareholders) were confirmed in Financing Cash Flow and were at a level covered by Free Cash Flow of ¥0.57B. As no share repurchases were confirmed, this report evaluates the company based on the Payout Ratio rather than the Total Return Ratio.

Risk Factors

1. Delays in the collection of accounts receivable: Trade receivables and contract assets increased by ¥0.19B during the interim period, constraining OCF growth. If the collection cycle continues to lengthen, the working capital burden during the growth phase may increase.

2. Prolonged upfront investment in the SaaS Business: While the SaaS Business expanded its Revenue by +35.3%, its Segment Loss increased from ¥0.18B in the previous year to ¥0.30B. If delays in recovering investments continue, downward pressure on the consolidated margin and cash flow may persist.

3. SG&A expense growth exceeding revenue growth: SG&A expenses increased by +29.0%, exceeding the revenue growth rate of +13.8% and reducing the Operating Margin by 140bp. If this trend continues, it may become a structural factor compressing margins and offsetting the benefits of gross profit improvement.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Return

Within the industry, the company is well above the median in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, positioning the company relatively conservatively in terms of growth.

※Source: Company analysis

Key Points from the Earnings Results

1. The Operating Margin of 30.0% and Gross Margin of 56.4% are supported by the high profitability of the Solution Business, and the core business continues to trend toward higher revenue and profit.

2. The decline in Net Income was primarily due to the recognition of a ¥0.23B extraordinary loss related to head office relocation expenses and should be evaluated separately from the increase in Operating Income and Ordinary Income.

3. The delay in cash conversion, reflected in OCF/EBITDA of 0.48x and the increase in trade receivables, represents a working capital efficiency challenge relative to the company’s high accounting profitability and will be an area to monitor going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥376–¥399 at Cost of Equity ±1%, and ¥384–¥392 at ω±0.1.

Notes:

• Net assets as of the end of the quarter 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 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 discretion and responsibility, after consulting a professional advisor where necessary.

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