ExaWizards (4259) FY2026 Q3 Earnings Report

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Executive Summary

The key feature of the current results was the turnaround from an operating loss in the same period of the previous year to operating profitability, driven by strong growth in the AI Product Business and company-wide operating leverage. Revenue was ¥8.35B (+17.1% YoY), Operating Income was ¥1.03B (compared with a ¥0.24B loss in the same period of the previous year), Ordinary Income was ¥1.01B (compared with a ¥0.25B loss), and Net Income was ¥0.72B (compared with a ¥0.49B loss). In addition to higher revenue, lower cost of sales and restrained growth in SG&A expenses supported the improvement in profit margins.

Factors Affecting Performance

【Revenue】Revenue was ¥8.35B, representing a 17.1% increase YoY. By segment, the AI Product Business grew significantly to ¥3.44B (+63.9% YoY), driving overall company growth, while the AI Solutions Services Business declined to ¥4.92B (△2.4% YoY). As a result, the AI Product Business’s revenue contribution increased from 29.4% to 41.1%, indicating that the earnings structure is shifting toward the product business.

【Profit and Loss】Operating Income turned profitable at ¥1.03B (compared with a ¥0.24B loss in the same period of the previous year). As cost of sales decreased 15.3% YoY while revenue increased, gross profit expanded to ¥5.66B (+43.1% YoY), and the gross margin rose to 67.8% (55.5% in the previous year). SG&A expenses increased only 10.4% YoY to ¥4.64B, and strong operating leverage emerged as the increase in gross profit (+¥1.70B) significantly exceeded the increase in SG&A expenses (+¥0.16B). Segment profit improved in both the AI Product Business, at ¥1.33B (38.8% margin; 15.9% in the previous year), and the AI Solutions Services Business, at ¥1.50B (30.5% margin; 19.2% in the previous year). The impairment loss of ¥0.06B recorded in the same period of the previous year did not recur in the current period, and this base effect also contributed to the improvement in Net Income. The divergence between Ordinary Income and Net Income was attributable to corporate income taxes of ¥0.29B and profit attributable to non-controlling interests of ¥0.03B. Extraordinary gains and losses were negligible and effectively zero, supporting the view that the return to profitability was underpinned by improved Operating Income. The results therefore reflect both revenue growth and profit growth.

Segment Analysis

The AI Product Business recorded substantial growth in both revenue and profit, with revenue of ¥3.44B (41.1% contribution; +63.9% YoY) and segment profit of ¥1.33B (38.8% margin; 15.9% in the previous year), representing a significant improvement in profitability. Although the AI Solutions Services Business experienced a revenue decline to ¥4.92B (58.9% contribution; △2.4% YoY), segment profit increased to ¥1.50B (30.5% margin; 19.2% in the previous year), indicating improved earnings quality. In terms of segment profit, the AI Solutions Services Business (¥1.50B, 52.9% contribution) remains the largest, but the AI Product Business (¥1.33B, 47.0% contribution) is approaching it in absolute profit, indicating that the balance of profit contributions between the two businesses is becoming more even. Common segment expenses were ¥1.81B (+17.4% YoY), with the increase remaining broadly in line with the revenue growth rate.

Key Financial Indicators

【Profitability】The Operating Margin was 12.3%, improving by 1,560bp from negative 3.3% in the same period of the previous year. The Net Profit Margin, based on profit attributable to owners of the parent, was 8.3%, while the gross margin was 67.8%, up 1,230bp from 55.5% in the previous year.【Cash Quality】Cash and deposits were ¥3.44B, accounting for 41.3% of total assets, while accounts receivable were ¥2.13B, accounting for 25.5% of total assets. Annualized days sales outstanding were estimated at approximately 70 days, a somewhat high level relative to the asset base.【Investment Efficiency】Annualized ROE was 25.0% based on the disclosed figure, indicating high return on equity supported by the combination of the Net Profit Margin, total asset turnover, and financial leverage. Revenue relative to total assets, on a turnover basis, has remained above 1x.【Financial Soundness】The Equity Ratio was 46.4%, improving from 34.3% in the previous year. Current assets of ¥6.03B substantially exceeded current liabilities of ¥2.01B, indicating strong short-term liquidity. Although the company carried ¥2.03B in long-term borrowings, Operating Income was sufficiently large relative to interest expense of ¥0.02B, limiting the interest burden. Retained earnings remained negative at ¥2.74B, reflecting accumulated losses, but improved from negative ¥3.44B in the previous year.

Cash Flow Analysis

Although the statement of cash flows was not directly disclosed, fund movements can be assessed from changes in the balance sheet. Cash and deposits were ¥3.44B, an increase of ¥0.43B from ¥3.01B in the previous year, indicating an accumulation of funds consistent with the increase in net assets (¥2.54B→¥3.87B, +52.3%). Intangible fixed assets increased 28.0% to ¥1.80B, suggesting that investment activity, primarily in software, has continued. Long-term borrowings were ¥2.03B, broadly flat from the previous year, with no large-scale additional financing or repayments observed. The return to Net Income profitability and improvement in retained earnings (negative ¥3.44B→negative ¥2.74B) supported the accumulation of cash on hand, and the financial foundation has been improving from the previous year.

Earnings Quality

The improvement in current-period profit was primarily attributable to the turnaround to Operating Income profitability. Extraordinary gains and losses were negligible and effectively zero (extraordinary gain of ¥0.002B and extraordinary loss of ¥0.0B), indicating limited dependence on temporary factors. Non-operating income and expenses also remained small, including a foreign exchange gain of ¥0.0B and interest expense of ¥0.02B, and Ordinary Income therefore moved broadly in line with Operating Income. The impairment loss of ¥0.06B recorded in the AI Solutions Services Business in the same period of the previous year did not recur in the current period, and this base effect should be noted as part of the YoY profit growth rate. Comprehensive Income was ¥0.72B, broadly in line with Net Income of ¥0.72B, indicating only a minor divergence attributable to other comprehensive income items and generally good earnings quality.

Earnings Forecast and Guidance

Against the Full-Year plan, revenue was ¥11.80B forecast, representing a progress rate of 70.8%, while Operating Income was ¥1.35B forecast, representing a progress rate of 76.1%. Operating Income progress was broadly consistent with the standard Q3 progress rate of 75%, whereas revenue progress was 4.2 points below that level. To achieve the Full-Year plan in Q4, revenue of ¥3.45B and Operating Income of ¥0.32B will be required. This is below the cumulative Operating Margin of 12.3%, so the hurdle for achieving the plan is not relatively high on the profit side. The Full-Year revenue forecast represents a +20.3% increase YoY and incorporates an acceleration in growth during the second half.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the projected Full-Year dividend is also ¥0, resulting in a Payout Ratio of 0%. Although the company has returned to profitability in the current period, it continues to follow a policy of not allocating profits to dividends at this time. The book value of treasury shares was negative ¥0.69B, down from negative ¥1.18B in the previous year; however, this does not indicate share repurchases during the current period and is therefore excluded from the calculation of the Total Return Ratio.

Risk Factors

1. Accounts Receivable Collection Cycle: Accounts receivable were ¥2.13B, accounting for 25.5% of total assets, and the annualized collection period was estimated at approximately 70 days. Cash and deposits of ¥3.44B and a current ratio of approximately 300% mitigate concerns regarding short-term funding, but developments in the collection cycle require monitoring.

2. Growth Disparity Between Businesses: The AI Product Business drove overall growth with YoY growth of +63.9%, while the AI Solutions Services Business experienced a △2.4% YoY revenue decline. Growth is concentrated in one business, creating a structure in which the sustainability of the AI Product Business’s high margin (38.8%) affects company-wide performance.

3. Level of Intangible Assets: Intangible fixed assets were ¥1.80B, accounting for 21.6% of total assets, and increased 28.0% from the previous year. Given the asset composition is centered on software investment, impairment risk associated with changes in profitability and technology trends should be monitored continuously.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

The company demonstrates profitability above the industry median, with both the Operating Margin and Net Profit Margin positioned in the upper range of the IQR.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median but remains below the IQR upper limit of 19.9%.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The improvement in the Operating Margin from negative 3.3% in the same period of the previous year to 12.3%, and the achievement of profit growth exceeding revenue growth, are notable facts indicating a change in the earnings structure.

2. The AI Product Business (revenue of ¥3.44B, +63.9% YoY, segment profit margin of 38.8%) is the core growth driver, while the AI Solutions Services Business improved its margin despite declining revenue, indicating that a shift in the business mix is progressing.

3. The Full-Year Operating Income progress rate of 76.1% exceeds the standard progress rate, while the revenue progress rate of 70.8% falls below the standard. The collection trend for accounts receivable, equivalent to annualized DSO of 70 days, also requires continued monitoring to assess the quality of profit conversion into cash.

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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 responsibility, after consulting professionals as necessary.

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