Ubiquitous AI Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.78B
• Operating Income: ¥-155M
• Net Income: ¥-68M
• 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

Ubiquitous AI (TSE: 38580) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but a significant deterioration in profitability. Revenue was 1,784 million yen, up 2.1% YoY, with a solid gross margin of 38.0% (gross profit 679 million yen). Despite the healthy gross margin, operating income fell to a loss of 155 million yen (-93.8% YoY), indicating substantial operating deleverage and cost pressure. Ordinary income and net income were losses of 179 million yen and 191 million yen, respectively, translating to a net margin of -10.7%. Depreciation and amortization were modest at 15 million yen, making EBITDA -140 million yen (-7.8% margin), highlighting that operating losses are not driven by non-cash charges. The DuPont framework indicates an ROE of -8.60% driven by a negative net margin (-10.71%), moderate asset turnover (0.595x), and modest financial leverage (1.35x). Balance sheet strength remains a key support: total assets were 2,998 million yen and total equity 2,222 million yen, implying an equity ratio of roughly 74% based on available figures (the disclosed 0% equity ratio is treated as unreported). Liquidity is strong with current assets of 2,513 million yen against current liabilities of 731 million yen, equating to a current ratio of 344% and quick ratio of 343%, supported by very low inventories (10 million yen), consistent with a software/licensing-heavy model. Operating cash flow was positive at 200 million yen (about 11.2% of revenue), despite the net loss, suggesting favorable working-capital dynamics and cash collection. Financing cash flow was an outflow of 192 million yen, likely reflecting debt repayment or similar items; dividend payments are not indicated for the period. Investing cash flow and cash balance were shown as zero, which we treat as unreported rather than actual zeros; therefore, free cash flow cannot be reliably assessed from the provided data. Cost structure appears heavy at the operating expense line: implied SG&A was approximately 834 million yen (about 46.7% of revenue), which overwhelmed the gross profit despite the decent gross margin. Interest expense remains negligible at 1.3 million yen, and leverage appears modest (total liabilities 1,054 million yen versus equity 2,222 million yen). Overall, the quarter reflects resilient revenue and gross margin but insufficient scale to cover fixed costs, resulting in losses and a negative ROE. The strong balance sheet and positive OCF offer runway, but restoring operating margin via growth or cost discipline is crucial. Data limitations exist for certain items (equity ratio, cash and equivalents, investing cash flows, shares outstanding), which should be addressed in future disclosures to refine trend analysis and cash coverage assessments.

Profitability Analysis

ROE of -8.60% is explained by DuPont as: Net Profit Margin (-10.71%) x Asset Turnover (0.595x) x Financial Leverage (1.35x). The dominant driver of negative ROE is the net margin, with only moderate turnover and modest leverage. Gross margin is solid at 38.0%, indicating acceptable pricing and product mix, but operating margin is -8.7% (operating loss 155 million yen on 1,784 million yen revenue) due to high operating expenses. Implied SG&A of ~834 million yen equates to 46.7% of revenue, suggesting insufficient scale and/or elevated opex (R&D/personnel) relative to the revenue base. EBITDA margin is -7.8%, with low D&A (15 million yen) indicating losses are largely cash operating in nature absent working-capital effects. Interest burden is de minimis (interest expense 1.3 million yen; interest/revenue ~0.07%), so finance costs are not the source of margin pressure. Operating leverage appears unfavorable this period: a small 2.1% revenue increase was not enough to absorb fixed costs, resulting in a sharp YoY deterioration in operating income (-93.8% YoY to a loss). The gap between gross margin (38.0%) and operating margin (-8.7%) underscores the need for opex reduction or higher recurring/scale revenue to recover profitability. Ordinary margin (-10.0%) and net margin (-10.7%) track close to operating results, with limited non-operating offsets. Overall, profitability hinges on improving scale efficiency and tighter cost control while maintaining the current gross margin profile.

Growth Assessment

Revenue grew 2.1% YoY to 1,784 million yen, a modest increase that suggests steady but not rapid demand. Given the company’s low inventories and software-centric profile, growth is likely influenced by license revenues, maintenance, and project timing, which can introduce quarterly volatility. Gross margin at 38.0% indicates revenue quality remains acceptable, but the translation to operating profit was poor due to fixed-cost absorption. The sharp decline in operating income (to -155 million yen) implies negative operating leverage this half. With ordinary and net losses, the current growth rate is insufficient to cover the fixed cost base; either mix shift to higher-margin recurring revenues or stronger volume growth is needed. Positive OCF (200 million yen) despite the loss suggests collections and billing remained solid, which is supportive for ongoing operations. Without disclosed segment/backlog data, the sustainability of revenue growth cannot be fully assessed; order intake, recurring revenue ratio, and customer additions would clarify trajectory. Outlook hinges on cost discipline, conversion of pipeline projects, and maintaining gross margin. If revenue growth accelerates or opex efficiency improves, operating leverage can turn positive; otherwise, continued losses are likely. Absent investing CF detail, we cannot gauge growth investments or capitalized development trends this period.

Financial Health

Liquidity is strong: current assets 2,513 million yen vs current liabilities 731 million yen produce a current ratio of 3.44x and quick ratio of ~3.43x (given minimal inventories of 10 million yen). Working capital stands at 1,783 million yen, providing ample short-term flexibility. Solvency appears solid: total equity 2,222 million yen against total liabilities 1,054 million yen implies an equity ratio around 74% (based on available balances), and financial leverage (assets/equity) is 1.35x. Debt-to-equity of 0.47x (using total liabilities/equity) is modest. Interest expense is only 1.3 million yen, and while interest coverage on EBIT is negative due to losses, cash interest burden is immaterial at present levels. The financing cash outflow of 192 million yen suggests deleveraging or other financing uses; details are not disclosed. Cash and equivalents were not disclosed (reported as zero), so net cash/liquidity buffers cannot be precisely quantified from the provided data. Overall, the balance sheet provides a cushion to absorb near-term operating losses, but sustained losses would gradually erode equity.

Cash Flow Quality

Operating cash flow was positive at 200 million yen, exceeding net loss of 191 million yen (OCF/NI ≈ -1.05 given negative NI), indicating strong cash conversion driven by working-capital movements and/or deferred revenue collections. With EBITDA at -140 million yen and D&A of 15 million yen, the positive OCF points to favorable non-P&L cash drivers (e.g., receivables collection, advances). Investing cash flow was reported as zero, which we treat as unreported; therefore, we cannot determine capex or capitalized development spend this period. Free cash flow cannot be reliably calculated without investing cash flow disclosure. The positive OCF provides operational funding capacity and mitigates near-term liquidity risk. Working capital appears well-managed: low inventories (10 million yen) and ample current assets support cash generation; however, the absence of AR/AP breakdown and cash balance data limits detailed analysis of underlying cash drivers. Earnings quality is mixed—loss-making on an accrual basis but cash-generative in the period due to working capital, which may not be repeatable if collections normalize or order timing shifts.

Dividend Sustainability

No dividends were paid (annual DPS 0.00; payout ratio 0%). With net losses and negative ROE, a conservative stance on shareholder returns is consistent with preserving capital. Given that investing cash flow data is not disclosed, free cash flow coverage of dividends cannot be assessed; the reported 0.00x should be treated as not meaningful. Near-term dividend capacity will depend on restoring operating profitability and generating sustainable free cash flow. The strong balance sheet provides theoretical capacity, but absent profits, initiating or increasing dividends would be unlikely under typical Japanese corporate policies prioritizing earnings stability and investment needs. Policy visibility is limited without explicit guidance; we would look for a return to positive operating income and consistently positive OCF plus clarity on capex before reassessing dividend sustainability.

Risk Assessment

Business Risks:

• Project timing and customer concentration in embedded/AI software can drive revenue volatility and operating leverage swings.
• Pricing pressure and competition in software/security/IoT stacks may compress gross margins.
• Execution risk on large OEM or automotive programs (delays, specifications changes, acceptance risk).
• Talent retention and R&D investment requirements elevating fixed costs relative to revenue scale.
• Technology obsolescence risk in rapidly evolving AI and embedded systems markets.

Financial Risks:

• Operating losses (-155 million yen OI; -191 million yen NI) if sustained would erode equity and pressure cash over time.
• Negative interest coverage on EBIT, albeit with minimal absolute interest expense.
• Dependence on working-capital inflows to offset accrual losses; potential reversal could weaken OCF.
• Limited visibility on cash reserves and investing outlays due to unreported cash and investing CF, complicating liquidity assessment.

Key Concerns:

• Insufficient scale to cover fixed costs (SG&A ~47% of revenue), leading to negative operating margin.
• Need to strengthen recurring revenue and backlog to improve revenue visibility and operating leverage.
• Data gaps (cash balance, investing cash flows, share count details) limit precision in FCF and per-share analysis.

Investment Implications

Key Takeaways:

• Top-line grew 2.1% YoY to 1.78 billion yen, but operating income swung to a 155 million yen loss due to cost pressure.
• Gross margin remained solid at 38.0%, yet SG&A at ~47% of revenue drove operating deleverage.
• ROE was -8.60% per DuPont (NPM -10.71%, AT 0.595x, leverage 1.35x), with margin the key drag.
• Balance sheet is strong: equity ~74% of assets; current ratio 3.44x and minimal inventories.
• Operating cash flow positive at 200 million yen, mitigating near-term liquidity risk despite losses.
• Investing cash flow and cash balance are not disclosed; FCF cannot be reliably assessed.

Metrics to Watch:

• Order intake/backlog and recurring revenue ratio to gauge revenue visibility.
• Operating expense run-rate (particularly personnel/R&D) and SG&A-to-sales trajectory.
• Gross margin by product/segment to assess pricing power and mix.
• OCF vs NI and changes in receivables, payables, and deferred revenue.
• Cash and equivalents and capex/capitalized development once disclosed.
• Progress toward break-even operating margin and EBITDA.

Relative Positioning: Versus small-cap Japanese software peers, Ubiquitous AI exhibits a stronger-than-average balance sheet and liquidity, but currently weaker profitability with negative operating income and ROE; improving operating leverage and recurring revenue mix will be crucial to close the profitability gap.

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