ExaWizards Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.24B
• Operating Income: ¥546M
• Net Income: ¥-405M
• EPS: ¥4.59

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

ExaWizards (4259) reported FY2026 Q2 (cumulative) consolidated results with revenue of ¥5,238m, up 14.0% YoY, while operating income held flat at ¥546m, indicating negative operating leverage in the period despite solid top-line growth. Gross profit was ¥2,526m, implying a robust gross margin of 48.2%, but SG&A of roughly ¥1,980m (about 37.8% of revenue) absorbed most of the gross profit expansion. Operating margin was 10.4% and EBITDA margin 15.3%, underscoring reasonable operating profitability for a growth-stage software/services profile. Ordinary income of ¥537m was slightly below operating income, reflecting modest net non-operating expense, largely interest expense of ¥14m; interest coverage remains strong at 39x. Net income was ¥385m (flat YoY) with a reported net margin of 7.35%, aided by a near-zero effective tax rate, likely due to loss carryforwards. DuPont analysis yields ROE of 11.03%, decomposed into a 7.35% net margin, 0.667x asset turnover, and 2.25x financial leverage—an acceptable return profile given investment for growth. Liquidity appears strong with a current ratio of 253% and working capital of ¥3,164m, providing ample near-term coverage of obligations. The balance sheet shows total assets of ¥7,857m, liabilities of ¥4,484m, and equity of ¥3,489m, translating into a total-liabilities-to-equity ratio of about 1.29x; absolute debt levels are not disclosed separately. Cash flow conversion is weak this half: operating cash flow was only ¥3m versus ¥385m of net income (OCF/NI ~0.01), signaling a material working capital drag or timing effects in collections or contract assets. Investing cash flow is undisclosed (shown as zero) and financing cash flow was an outflow of ¥111m, likely debt or lease repayments. The company did not declare a dividend (DPS ¥0), consistent with reinvestment. Several items are not disclosed in XBRL (e.g., cash balance, inventories, investing cash flow, equity ratio, share count, BVPS), so interpretations rely on available line items and derived indicators. Based on EPS of ¥4.59 and net income of ¥385m, the implied average share count is approximately 83.9m, but this is an inference. Overall, the company exhibits healthy gross economics and strong liquidity with moderate leverage, but cash flow quality in the half is weak, and operating leverage was negative as SG&A growth offset revenue gains. Monitoring cash conversion, receivables, and contract asset movements is critical to validate earnings quality in the second half.

Profitability Analysis

ROE (DuPont) is 11.03%, driven by a 7.35% net margin, 0.667x asset turnover, and 2.25x financial leverage. Operating margin is 10.4% (¥546m/¥5,238m), with EBITDA margin at 15.3% supported by ¥257m of D&A. Gross margin is 48.2%, indicating solid unit economics; however, SG&A intensity is high at ~37.8% of revenue, compressing operating leverage in the period. The flat YoY operating income versus +14% revenue implies incremental margins near zero, suggesting higher personnel, R&D, and go-to-market investments or increased project delivery costs. Ordinary income trails operating income slightly due to net non-operating costs, but interest burden is light (¥14m) with 39x coverage, providing resilience. The near-zero tax rate boosts net margin and ROE but is not structurally guaranteed; normalization would reduce net margin. Overall, profitability is acceptable for a growth stage, with room to improve via tighter SG&A control and better cost absorption as scale increases.

Growth Assessment

Revenue grew 14.0% YoY to ¥5,238m, evidencing continued demand and pipeline conversion. However, operating income was flat YoY, implying negative operating leverage and suggesting growth required higher customer acquisition or delivery costs. Gross profit expanded to ¥2,526m with a strong 48.2% margin, indicating the underlying business model retains attractive economics. Profit quality is mixed: EBITDA of ¥803m provides operating cushion, but net income growth stalled and cash conversion was very weak (OCF/NI ~0.01). The near-zero effective tax rate inflated bottom-line stability; if tax expenses normalize, net income growth would appear softer. Outlook hinges on the company’s ability to translate revenue growth into operating profit via SG&A discipline and improved utilization; scaling fixed cost bases in sales and R&D should yield better incremental margins in subsequent periods if execution is sound. With investing cash flows undisclosed, we assume ongoing growth investments; confirmation of capex and intangibles additions would clarify the pace of reinvestment. In the near term, a rebound in cash collection and moderation of operating expense growth are key for converting revenue growth into durable earnings.

Financial Health

Liquidity is strong: current ratio 253.2% and quick ratio also 253.2% (inventories undisclosed), with working capital of ¥3,164m, offering a substantial buffer. Solvency appears moderate: total liabilities/total equity is ~1.29x; absolute interest expense of ¥14m and 39x coverage indicate manageable financial risk. Total assets are ¥7,857m against equity of ¥3,489m (assets/equity 2.25x), consistent with DuPont leverage. The reported equity ratio was shown as 0.0% but should be treated as undisclosed; actual equity/asset ratio is roughly 44% based on provided totals. Cash and equivalents were shown as zero (undisclosed), so net cash or net debt cannot be assessed from the dataset. Overall, balance sheet resilience looks adequate for ongoing operations, aided by strong current assets and low interest burden; however, the lack of disclosed cash balance and debt split limits precision in solvency assessment.

Cash Flow Quality

Operating cash flow was ¥3m against net income of ¥385m (OCF/NI ~0.01), indicating weak cash conversion due to working capital movements or timing of billings and collections. With D&A at ¥257m and EBITDA at ¥803m, pre-working-capital operating cash generation should be healthy; therefore, the shortfall likely stems from increases in receivables, contract assets, or other current assets, or decreases in contract liabilities. Free cash flow is shown as zero (undisclosed), and investing cash flow is also undisclosed, preventing a full FCF assessment. Financing cash flow was an outflow of ¥111m, likely reflecting lease and/or debt repayments. Given the strong reported working capital position, the OCF softness may be temporary and tied to growth; confirmation via second-half OCF recovery would validate earnings quality. Until then, earnings quality is rated mixed: accrual-heavy this half, pending evidence of collection. Key to watch: days sales outstanding, unbilled receivables/contract assets, and customer advance trends.

Dividend Sustainability

The company pays no dividend (DPS ¥0; payout ratio 0.0%). Given early-stage growth characteristics, negative operating leverage this half, and weak OCF, retaining earnings appears consistent with a reinvestment-first policy. FCF coverage metrics are not meaningful as FCF is undisclosed; thus, capacity for distributions cannot be robustly assessed. With equity of ¥3,489m and modest interest burden, financial flexibility exists, but initiating dividends would depend on sustained positive OCF and clearer visibility on capex/intangible investment needs. Policy outlook likely remains focused on growth investments and balance sheet reinforcement over near-term shareholder returns.

Risk Assessment

Business Risks:

• Execution risk in scaling AI/solution delivery while controlling SG&A, evidenced by flat operating income on 14% revenue growth
• Revenue recognition and project timing risk leading to quarter-to-quarter volatility in margins and cash
• Client concentration or large-project dependency typical in enterprise AI/solutions (not disclosed, but a sector characteristic)
• Human capital and hiring costs pressure as the company expands delivery and R&D resources
• Competitive intensity in AI/software services potentially pressuring pricing and gross margins over time

Financial Risks:

• Weak cash conversion in the half (OCF/NI ~0.01) signaling working capital risk
• Limited disclosure of cash balance, debt composition, and investing cash flows impairs visibility on liquidity runway
• Potential normalization of tax rate from near-zero could reduce net margin and ROE
• Reliance on continued favorable financing terms; though current interest burden is low, future rate or credit changes could impact costs

Key Concerns:

• Negative operating leverage despite double-digit revenue growth
• Very low OCF relative to net income, suggesting elevated accruals or collection delays
• Undisclosed cash, investing cash flow, and inventory metrics constrain full cash and capex assessment

Investment Implications

Key Takeaways:

• Top-line growth remained solid at +14% YoY to ¥5,238m, but operating profit was flat, indicating investment intensity.
• Gross margin is strong at 48.2%, but SG&A at ~37.8% of sales compressed operating leverage.
• ROE at 11.03% is acceptable, supported by a 7.35% net margin and moderate leverage (assets/equity 2.25x).
• Cash conversion was weak (OCF/NI ~0.01); validation via H2 recovery is essential for earnings quality.
• Liquidity is ample (current ratio 253%), and interest burden is light (39x coverage), mitigating near-term financial stress.
• Dividend remains suspended (DPS ¥0), consistent with reinvestment priorities.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio recovery in H2
• SG&A growth versus revenue growth (operating leverage trajectory)
• Receivables, contract assets/liabilities, and DSO trends
• Gross margin stability amid competitive pressures
• Tax expense normalization and its impact on net margin
• Disclosure of cash balance and investing cash flows (capex/intangibles)

Relative Positioning: Within Japanese AI/software-oriented small-mid caps, ExaWizards shows strong gross margins and adequate ROE with moderate balance sheet leverage, but currently lags best-in-class peers on cash conversion and operating leverage execution in the latest half.

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