i Cubed Systems (4495) FY2026 Q2 Earnings Report

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Executive Summary

The key point of these results is that, in addition to double-digit revenue growth, gross margin improvement progressed, resulting in a substantial increase in operating income that significantly outpaced revenue growth. Revenue increased +24.0% YoY to ¥2.13B, operating income increased +61.5% to ¥0.68B, ordinary income increased +63.0% to ¥0.69B, and net income (consolidated) increased +61.5% to ¥0.45B. Of this amount, interim net income attributable to owners of the parent was ¥0.43B (+54.2% YoY). The operating margin expanded to 32.2%, from 24.7% in the same period of the previous year, an increase of approximately 7.5pt, with a lower cost ratio and relative containment of SG&A expenses driving the profit increase.

Factors Affecting Results

【Revenue】Revenue was ¥2.13B (+24.0% YoY), representing progress of 47.2% against the full-year plan of ¥4.51B, broadly a standard level. Although detailed segment disclosures are not available, the Company continues to achieve a high growth rate as a single-business company.

【Profit and Loss】Gross profit increased ¥1.67B (+36.2% YoY), outpacing revenue growth, and the gross margin rose to 78.3%, from 71.3% in the same period of the previous year. The primary factor was that the cost of sales remained at ¥0.46B. SG&A expenses increased to ¥0.98B (+22.8%), slightly below the 24.0% revenue growth rate, and the SG&A ratio declined to 46.2%, from 46.6% in the same period of the previous year. Ordinary income slightly exceeded operating income, indicating that the impact of non-operating income and expenses was minor. Against profit before tax of ¥0.69B, after deducting income taxes of ¥0.24B and the portion attributable to non-controlling interests of ¥0.02B, profit attributable to owners of the parent was ¥0.43B. Revenue and profit both increased, with operating leverage arising from the lower cost ratio and relative containment of SG&A expenses serving as the primary driver of profit growth.

Key Financial Metrics

【Profitability】The operating margin of 32.2% (24.7% in the same period of the previous year) and gross margin of 78.3% (71.3% in the same period) both improved significantly. The net profit margin (on a consolidated basis) was approximately 21.3%, a high level.【Cash Quality】Operating cash flow (OCF) was ¥0.54B, or 1.25 times profit attributable to owners of the parent of ¥0.43B, indicating solid cash backing for earnings. However, the OCF/EBITDA ratio remained at approximately 0.66 times, indicating relatively low conversion efficiency from EBITDA to operating cash. The factors were a ¥0.03B increase in accounts receivable and a ¥0.09B decrease in contract liabilities, which resulted in an outflow of working capital funds.【Investment Efficiency】Annualized ROE was 28.8% (based on XBRL metrics), a high level driven by the high net profit margin. While capital expenditures were limited to ¥0.00B, investment was concentrated in intangible assets, including ¥0.14B in acquisitions of intangible fixed assets and ¥0.15B in software under development.【Financial Soundness】The equity ratio was 67.8% (an improvement from the equivalent 60.8% level in the same period of the previous year), and liquidity was ample, with current liabilities of ¥1.41B against current assets of ¥3.22B. Cash and deposits were ¥2.45B, accounting for approximately 52.7% of total assets, indicating a stable financial foundation.

Cash Flow Analysis

Operating cash flow was ¥0.54B, an increase of +34.0% YoY, and exceeded profit attributable to owners of the parent of ¥0.43B, indicating solid cash backing for earnings. However, OCF growth was moderate compared with the 61.5% growth in operating income, while the ¥0.03B increase in accounts receivable and ¥0.09B decrease in contract liabilities were sources of working-capital cash outflows. Investing cash flow was an outflow of ¥0.17B, primarily consisting of ¥0.14B in acquisitions of intangible fixed assets, while capital expenditures were limited to ¥0.00B. Financing cash flow was an outflow of ¥0.17B, almost entirely consisting of ¥0.17B in dividend payments. As a result, free cash flow was positive at ¥0.37B, and the Company maintained financial capacity even after paying dividends and investing in intangible assets.

Earnings Quality

The current profit growth was not attributable to temporary non-operating factors but was supported by recurring factors, namely a decline in the cost-of-sales ratio and relative containment of SG&A expenses. Both non-operating income and expenses were minimal, and ordinary income only slightly exceeded operating income, indicating limited effects from interest expenses and foreign-exchange gains or losses. No extraordinary gains or losses were identified, and the ¥0.01B difference between profit before tax of ¥0.69B and operating income of ¥0.68B was primarily attributable to a small net gain from non-operating items. Meanwhile, although OCF exceeded profit attributable to owners of the parent and accruals remained low, the OCF/EBITDA ratio of 0.66 times indicates that cash generation is somewhat lagging accounting profit growth. If the decline in contract liabilities continues, this will require monitoring from an earnings-quality perspective.

Earnings Forecast and Guidance

Progress against the full-year plan was 47.2% for revenue (¥2.13B/¥4.51B), slightly below the standard 50% level, while operating income reached 61.5% (¥0.68B/¥1.11B) and ordinary income reached 63.2% (¥0.69B/¥1.09B), both substantially ahead of the standard pace. The full-year plan assumes an operating margin of 24.7%, below the first-half actual result of 32.2%, suggesting that the Company’s plan incorporates an increase in expenses or normalization of the profit margin in the second half. Whether the high first-half profit margin can be sustained for the full year and the expense trend in the second half will be key areas of focus.

Shareholder Returns

The Q2 dividend was ¥18.00 per share, and the full-year forecast dividend is ¥36.00 per share. Based on forecast EPS of ¥143.93, the forecast payout ratio is approximately 25.0%, indicating that the level of returns based solely on dividends remains low and is highly sustainable. Operating cash flow of ¥0.54B exceeded dividend payments of ¥0.17B, and together with positive free cash flow of ¥0.37B, dividend funding is also supported from a cash flow perspective. No data on share repurchases during the current period is available, and the total return ratio has not been calculated.

Risk Factors

1. Declining operating cash conversion efficiency: The OCF/EBITDA ratio remained at approximately 0.66 times. If the ¥0.03B increase in accounts receivable and ¥0.09B decrease in contract liabilities continue, OCF growth may be constrained relative to profit growth.

2. Decline in contract liabilities: Contract liabilities decreased ¥0.09B YoY to ¥0.74B, accounting for more than half of current liabilities. If the decline in advance receipts reflects a change in contractual terms rather than a one-time factor, its impact on working capital and cash flow may persist.

3. Monetization of intangible-asset investments: Investments are expanding, with ¥0.14B in acquisitions of intangible fixed assets and ¥0.15B in software under development. If the deployment of functions developed through investment or the expansion of sales takes longer than expected, the investment payback period could be extended.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability is significantly above the median for the IT and telecommunications industry.

Growth and Capital Efficiency

The revenue growth rate is broadly in line with the industry median, while the Company is achieving high profitability at an industry-average growth rate.

※Source: Compiled by the Company

Key Points from the Results

1. The operating margin improved significantly to 32.2% (24.7% in the same period of the previous year), while the gross margin rose to 78.3% (71.3% in the same period), with the lower cost-of-sales ratio and relative containment of SG&A expenses driving profit growth.

2. Although profit progress against the full-year plan is high at over 60%, the assumed profit margin in the full-year plan (24.7%) is below the first-half actual result (32.2%). Expense trends and the sustainability of the profit margin in the second half will therefore be key points for further confirmation.

3. The OCF/EBITDA ratio remained at 0.66 times, with working-capital cash outflows caused by the increase in accounts receivable and decrease in contract liabilities constraining cash conversion efficiency relative to accounting profit growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥956–¥1,014 at ±1% for the cost of equity, and ¥975–¥998 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥15.7 per share is added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Since net income progress against the full-year forecast (61%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated using publicly disclosed data only; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and, where necessary, after consulting with a professional advisor.

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