User Local,Inc. FY2026 FY Earnings Report

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Executive Summary

The Company posted double-digit growth in both revenue and profit for the current period, resulting in higher revenue and earnings; however, the operating margin declined slightly due to the front-loading of growth investments. Revenue was ¥5.34B (+16.6% YoY), Operating Income was ¥2.20B (+11.4%), Ordinary Income was ¥2.21B (+12.1%), and Net Income was ¥1.63B (+14.4%). The increase in revenue was driven by expanding demand in the core business, with limited contribution from extraordinary gains and losses. Operating Cash Flow reached 1.37 times Net Income, highlighting the Company’s strong cash-generating capacity underpinning its earnings.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥5.34B, representing a 16.6% YoY increase. Domestic revenue accounted for more than 90% of total revenue, and disclosure of the regional breakdown was omitted because the amounts were immaterial. The increase in revenue reflected expanding demand in the core business, and no temporary factors contributing to an uplift were identified.

【Profit and Loss】Operating Income was ¥2.20B (+11.4%), Ordinary Income was ¥2.21B (+12.1%), and Net Income was ¥1.63B (+14.4%). The operating margin was 41.1%, down 1.9pt from 43.0% in the previous year. The primary factor was an increase in the SG&A ratio to 47.9% (+1.0pt from 46.9%), suggesting the front-loaded recognition of growth investments, including workforce expansion and promotional investment. The gross margin declined slightly to 89.0% from 89.9% in the previous year (-0.9pt), but remained at a high level. The difference between Ordinary Income and Net Income was at a standard level attributable to income tax expenses (¥0.68B in corporate income taxes and other taxes; effective tax rate of 29.3%). The contribution of extraordinary gains to Net Income was limited to approximately 6%, with ¥0.10B in extraordinary gains, including ¥0.06B in gains on the sale of investment securities. In conclusion, the Company posted higher revenue and earnings, although the operating margin declined slightly.

Key Financial Metrics

【Profitability】The operating margin was 41.1%, down 1.9pt from 43.0% in the previous year, while the net margin was 30.6%, down 0.6pt from 31.2%. Although the gross margin remained high at 89.0% (89.9% in the previous year), the increase in the SG&A ratio to 47.9% (46.9% in the previous year, +1.0pt) was the primary factor behind the decline in profitability.【Cash Quality】Operating Cash Flow was 1.37 times Net Income, and the OCF/EBITDA multiple was 0.99 times, indicating strong cash-generating capacity underpinning earnings.【Investment Efficiency】ROE was 17.3%, nearly flat compared with 17.4% in the previous year, while ROA based on Ordinary Income was also stable at 20.9% (21.0% in the previous year).【Financial Soundness】The Equity Ratio was 84.5%, down 2.7pt from 87.2% in the previous year, but remained high. Cash and deposits of ¥9.75B accounted for 87.2% of total assets, and cash coverage of current liabilities of ¥1.73B was substantial at 5.6 times.

Cash Flow Analysis

Operating Cash Flow increased 23.9% YoY to ¥2.24B, equivalent to 1.37 times Net Income of ¥1.63B, indicating strong cash-generating capacity underpinning earnings. Investing Cash Flow was positive at ¥0.04B due to the sale of securities and other factors, while capital expenditures remained limited to ¥0.05B, reflecting an asset-light business model. Financing Cash Flow was negative ¥1.07B, including ¥0.76B in share repurchases, confirming the allocation of funds to shareholder returns and capital policy. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was ample at ¥2.28B. Even after funding dividend payments and treasury share purchases, cash and deposits increased ¥1.20B from the end of the previous fiscal year to reach ¥9.75B at period-end.

Quality of Earnings

The proportion of earnings derived from the core business was high during the current period, indicating good earnings quality. Extraordinary gains of ¥0.10B, including ¥0.06B in gains on the sale of investment securities, were temporary in nature and contributed only approximately 6% of Net Income of ¥1.63B. Non-operating income of ¥0.03B consisted mainly of interest income (¥0.02B), representing stable earnings supported by the substantial cash balance of ¥9.75B and having limited non-recurring characteristics. From an accruals perspective, Operating Cash Flow of ¥2.24B exceeded Net Income of ¥1.63B, with a ratio of 1.37 times. The increase in advances received (+¥0.11B, +19.7%) and the increase in income taxes payable supported cash generation. The increase in trade receivables was limited to ¥0.03B, and no unnatural expansion of working capital that would create a divergence between earnings and cash was observed.

Earnings Forecast and Guidance

For the next period, the Company forecasts Revenue of ¥6.08B (+13.8%), Operating Income of ¥2.15B (-2.1%), Ordinary Income of ¥2.18B (-1.5%), and Net Income of ¥1.50B (-8.0%), representing a plan for higher revenue but lower earnings. The forecast operating margin is 35.4%, expected to decline 5.8pt from the current-period result of 41.1%, primarily due to the front-loaded recognition of growth investments. Forecast EPS is ¥95.59, representing an expected decrease of -6.9% from the current-period result of ¥102.63. The decline in the profit margin amid revenue growth suggests that the Company is in a growth phase in which investment in personnel, development, and promotion is being front-loaded.

Shareholder Returns

The Payout Ratio for the current period was 23.4%, with total dividends of approximately ¥0.38B against Net Income of ¥1.63B. The Company plans a dividend per share of ¥30 for the next period, representing a dividend increase of +25.0% from the current-period result of ¥24. Including ¥0.76B in share repurchases, total shareholder returns (dividends + share repurchases) amounted to approximately ¥1.14B, resulting in an estimated Total Return Ratio of 70.0% relative to Net Income. Given ample Free Cash Flow of ¥2.28B and cash and deposits of ¥9.75B, this level of shareholder returns is funded within the scope of internally generated funds.

Risk Factors

1. Decline in profitability due to front-loaded growth investments: Under the plan for the next period, the operating margin is expected to decline 5.8pt from 41.1% to 35.4%, and the front-loaded recognition of investments in personnel, development, and promotion could constrain earnings growth.

2. Cash-dependent capital structure: Cash and deposits account for 87.2% of total assets, and interest income (¥0.02B), the main component of non-operating income, is structurally susceptible to market interest rate trends.

3. Slowing growth in advances received and recurring revenue: Advances received increased to ¥0.68B (+19.7%), indicating an accumulation of advance orders; however, a slowdown in this growth could lead to a deceleration in the pace of revenue growth.

Industry Benchmarks (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s operating margin and net margin are both substantially above the industry median.

Growth and Capital Efficiency

The Company’s revenue growth rate also exceeds the industry median, while remaining within the upper IQR range.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. Strong cash generation and asset-light business model: Operating Cash Flow reached 1.37 times Net Income, while capital expenditures were limited to ¥0.05B, confirming the coexistence of strong cash generation and capital efficiency.

2. Slight decline in profitability despite higher revenue and earnings: The operating margin was 41.1% (43.0% in the previous year), and the Company expects a further decline to 35.4% under its plan for the next period, indicating that it is in a growth-investment phase.

3. Combination of dividend growth and share repurchases: The Company plans to increase the dividend per share from ¥24 to ¥30, a 25.0% increase, and the Total Return Ratio will reach 70.0% when combined with ¥0.76B in share repurchases; however, the level remains within the scope of internally generated funds based on Free Cash Flow.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥712–¥754 at ±1% for the Cost of Equity, and ¥729–¥738 at ±0.1 for ω.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not predict or guarantee the future share price)

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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 available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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