Ubiquitous AI Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.78B
• Operating Income: ¥-155M
• Net Income: ¥-191M
• EPS: ¥-18.28

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2026 Q2 was weak operationally with a swing to losses, despite modest topline growth and solid liquidity. Revenue rose 2.1% YoY to 17.84, but operating income deteriorated to -1.55 and ordinary income to -1.79, resulting in net income of -1.91. Gross margin printed at 38.3%, but SG&A of 8.38 exceeded gross profit of 6.83, driving an operating margin of about -8.7%. Ordinary margin was roughly -10.0% and net margin -10.7%, underscoring broad-based margin compression from elevated operating costs. While we lack prior-year margin detail to quantify exact bps changes, the move from breakeven/positive to -8.7% operating margin implies an approximate contraction approaching 900–1,000 bps. Cash flow was comparatively resilient: operating cash flow was positive at 0.72 against a net loss of -1.91, indicating better cash realization than accrual profits. That said, the OCF/NI ratio (-0.38x) mechanically flags low quality due to negative earnings, but the positive OCF itself is a relative positive. Free cash flow, approximated as OCF minus capex, was positive at about 0.66, aided by light capital intensity (capex 0.06). The balance sheet is strong: cash and deposits of 13.57 exceed total liabilities of 7.76, with current ratio at 428.5% and D/E at 0.35x, limiting near-term solvency risk. Intangibles of 3.72 and goodwill of 3.01 together represent roughly 30% of equity, introducing medium-term impairment risk if profitability does not recover. ROE was -8.6% driven primarily by negative net margin; asset turnover (0.595) and leverage (1.35x) were not the main drags. ROIC of -17.2% signals capital inefficiency this period, requiring either revenue scale-up or cost rationalization to clear typical 7–8% management targets seen in the sector. Non-operating items were small (income 0.03, expenses 0.26), offering little offset to operating weakness. Effective tax expense of 0.12 despite losses yields a -6.7% effective tax rate, likely due to non-deductible items or valuation allowance impacts. Forward-looking, cost control and mix improvement will be critical; the current SG&A run-rate must be reduced or revenue must accelerate meaningfully for a return to operating profitability. With healthy liquidity, the company has time to adjust, but prolonged losses could raise impairment and equity erosion risks. Near-term investor focus should remain on order intake, recurring revenue ratios, and visibility on SG&A discipline.

Profitability Analysis

DuPont decomposition indicates ROE of -8.6% = Net Profit Margin (-10.7%) × Asset Turnover (0.595) × Financial Leverage (1.35x). The dominant driver of the negative ROE is the sharp deterioration in net profit margin; asset turnover is moderate for a software/embedded solutions business, and leverage is low. The margin weakness stems from SG&A (8.38) exceeding gross profit (6.83), implying insufficient scale to cover fixed costs at the current revenue run-rate. This is likely tied to hiring/engineering investment, product development amortization, and project timing that delayed revenue recognition relative to costs. Sustainability: without cost actions or a step-up in high-margin license/royalty or support revenue, current loss levels are not sustainable; however, with modest revenue growth and a contained capex profile, margins could normalize if utilization improves. Watch for any sign that SG&A is growing faster than revenue; absent YoY SG&A disclosure, we cannot confirm this, but the current cost-to-revenue ratio is elevated and a concern.

Growth Assessment

Revenue grew 2.1% YoY to 17.84, indicating modest demand resilience but not enough scale to absorb fixed costs. Gross profit of 6.83 implies a gross margin of 38.3%, which is acceptable but not strong enough to support the current SG&A base. Operating income fell to -1.55 and ordinary income to -1.79, illustrating that growth quality is weak and operating leverage is negative at present. Non-operating contributions were negligible and could not offset operating losses. With R&D not disclosed and SG&A details unreported, the mix between growth investments and overhead is unclear, limiting visibility into how quickly operating leverage can turn positive. Outlook will hinge on backlog conversion, recurring license/maintenance expansion, and monetization of AI/embedded software offerings. Near- to mid-term, we expect management to prioritize SG&A discipline and margin accretive revenue mix to restore profitability.

Financial Health

Liquidity is strong: current ratio 428.5% and quick ratio 427.8% comfortably exceed benchmarks, and there is no warning for Current Ratio < 1.0. Cash and deposits of 13.57 exceed total liabilities of 7.76, and working capital stands at 15.83, indicating ample buffer. Debt is low: long-term loans are 0.37 and D/E is 0.35x, well within conservative thresholds (D/E < 1.5). Interest-bearing debt is not fully disclosed, but observed interest expense is near zero, and there is no evidence of heavy leverage. Maturity mismatch risk is low: current assets of 20.64 far exceed current liabilities of 4.82. Off-balance sheet obligations are not disclosed; thus, guarantees or lease commitments could exist but are not visible in the provided data.

Cash Flow Quality

OCF was 0.72 versus net income of -1.91, yielding an OCF/NI of -0.38x, which breaches the 0.8 threshold but is mechanically distorted by negative earnings; the positive OCF itself is a relative positive signal. Free cash flow is estimated at 0.66 (OCF 0.72 minus capex 0.06), indicating that, despite losses, cash burn is not occurring this quarter. Working capital appears supportive given strong receivables and low inventories; however, without detailed movements (AR, AP, deferred revenue), we cannot assess potential timing effects or revenue recognition impacts. Investing cash flow beyond capex is unreported, limiting visibility into acquisitions or capitalized development. There are no clear signs of working capital manipulation from the limited snapshot, but the gap between cash and accrual profits should be monitored in subsequent quarters.

Dividend Sustainability

Dividend information is unreported; with net losses and negative retained earnings (-8.42), ordinary dividend capacity is constrained under JGAAP unless distributions are made from capital surplus subject to legal procedures. Positive FCF (0.66) this quarter would theoretically support small distributions, but sustainability is questionable given operating losses and potential need to preserve cash for operations. Policy outlook is unclear due to lack of disclosure; absent a return to stable profitability, we view near-term dividend resumption or increases as low visibility.

Risk Assessment

Business Risks:

• Execution risk in scaling AI/embedded software revenues to cover a high fixed SG&A base
• Project timing and customer acceptance risks that can defer revenue recognition
• Product mix risk: insufficient growth of high-margin license/maintenance revenue
• Competitive pressure in embedded/AI middleware from domestic and global peers
• Potential goodwill/intangible impairment if loss-making trend persists

Financial Risks:

• Sustained operating losses eroding equity (ROE -8.6%, ROIC -17.2%)
• Negative retained earnings limiting dividend flexibility
• Intangibles and goodwill totaling ~6.73 (about 30% of equity) creating impairment sensitivity
• Dependence on receivables collection timing; AR is 5.79 versus AP 1.59

Key Concerns:

• Operating margin at -8.7% with SG&A exceeding gross profit
• Ordinary loss of -1.79 and net loss of -1.91 despite modest revenue growth
• Tax expense despite losses (effective tax rate -6.7%) indicating non-deductible items or valuation allowance effects
• ROIC at -17.2% well below 7–8% target range for software/tech peers

Investment Implications

Key Takeaways:

• Topline grew 2.1% YoY, but operating and ordinary losses widened, indicating negative operating leverage.
• Positive OCF (0.72) and FCF (~0.66) provide a cash cushion despite accounting losses.
• Balance sheet strength (cash 13.57 vs total liabilities 7.76; current ratio 428.5%) limits near-term solvency risk.
• Margin repair requires SG&A control and higher-margin revenue mix; current SG&A exceeds gross profit.
• ROE (-8.6%) and ROIC (-17.2%) point to capital inefficiency that must be addressed for value creation.

Metrics to Watch:

• Order backlog and conversion to revenue
• Gross margin trajectory and mix of license/maintenance vs services
• SG&A run-rate versus revenue growth
• Operating margin progression (bps change QoQ/YoY) and breakeven revenue level
• Operating cash flow and receivables days (DSO)
• Impairment indicators for goodwill and intangibles
• ROIC moving toward >5% as an initial milestone

Relative Positioning: Versus domestic embedded/AI software peers, the company currently lags on profitability (negative operating and ordinary margins) and capital efficiency (ROIC -17.2%), but it is stronger on liquidity with net cash and low leverage, offering runway to execute a turnaround.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis