Commerce One Holdings Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.91B
• Operating Income: ¥205M
• Net Income: ¥151M
• EPS: ¥22.23

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

Verdict: Mixed quarter—top-line grew and ordinary/net profit surged on non-operating gains, but core operating profitability deteriorated meaningfully. Revenue rose 5.2% YoY to 19.10, while gross profit reached 10.65, implying a robust gross margin of 55.7%. Operating income fell 35.9% YoY to 2.05, compressing the operating margin to 10.7%. Ordinary income increased 34.5% YoY to 2.78, supported by non-operating income of 0.74, including dividend income of 0.19 and interest income of 0.01. Net income more than doubled (+103% YoY) to 1.57, taking net margin to 8.2%. Operating margin compressed by roughly 690 bps YoY (from about 17.6% to 10.7%), reflecting higher operating cost intensity versus revenue growth. SG&A was 8.59 (45.0% of revenue), indicating tight operating leverage despite revenue growth. Earnings quality is a watch point: OCF was 1.22, only 0.78x net income, signaling weaker cash conversion. Financing CF was -1.11, primarily from share repurchases of -0.43; capex remained minimal at 0.03, limiting cash burn. The balance sheet is solid: current ratio 259%, equity ratio approximately 72%, and very low leverage (D/E 0.38x; interest coverage 576x). ROE printed at 5.9% via DuPont (NPM 8.2% × AT 0.519 × leverage 1.38x), while ROIC was an attractive 11.3%, suggesting value creation above cost of capital. Total comprehensive income was 4.10—well above net income—implying sizable unrealized gains flowing through OCI, likely tied to investment securities. The effective tax rate was elevated at 45.7%, a headwind that partially offset pretax gains. Dividend policy looks aggressive with a 91.6% payout ratio, which could be challenging if cash conversion remains sub-1.0x NI. Forward-looking, sustaining net profit growth will require restoring operating margin (cost control and mix) and normalizing tax rate/earnings mix away from non-operating drivers. Overall, the quarter demonstrates resilient demand but highlights the need to fortify core profitability and cash generation.

Profitability Analysis

ROE decomposition (DuPont): 5.9% = 8.2% Net Profit Margin × 0.519 Asset Turnover × 1.38x Financial Leverage. The most notable change versus revenue dynamics is the divergence between operating margin compression (-690 bps YoY) and an improved net margin, driven by a bigger contribution from non-operating income (0.74) relative to operating profit (2.05). Business reason: elevated SG&A intensity (45.0% of sales) and likely amortization/depreciation (0.62) pressured operating profit, while dividend/financial income supported ordinary income and net profit. Sustainability: non-operating income (especially dividend/financial components) is inherently more volatile and less controllable than operating earnings; sustainability depends on portfolio performance rather than core operations. Operating leverage is negative this quarter—revenue grew 5.2%, but operating income fell 35.9%, signaling cost inflation or growth investments outpacing revenue. Concerning trend flags: SG&A ratio is high; operating margin contraction despite top-line growth; effective tax rate elevated at 45.7%, which dampens after-tax returns.

Growth Assessment

Revenue grew 5.2% YoY to 19.10, indicating stable demand. Core profitability lagged revenue: operating income declined 35.9% YoY, reflecting margin pressure. Ordinary income (+34.5% YoY) and net income (+103% YoY) benefited from non-operating gains and possibly favorable portfolio-related items feeding into ordinary income and OCI (comprehensive income 4.10 vs NI 1.57). Gross margin at 55.7% remains strong, but SG&A at 45.0% limited operating leverage. EBITDA was 2.67 (14.0% margin), cushioning the operating decline but not reversing it. Outlook hinges on improving operating margin via cost discipline, pricing/mix optimization, and scaling recurring revenue, while recognizing that non-operating contributions can reverse. Near term, expect earnings volatility tied to financial income/dividends and the tax rate; medium term, restoring double-digit operating margin toward the prior-year level (~17–18%) is the key unlock for consistent EPS growth.

Financial Health

Liquidity is strong: current ratio 258.7% and quick ratio 258.7% with cash and deposits of 17.38 versus current liabilities of 9.19. No warning thresholds breached (Current Ratio >> 1.0; D/E 0.38x well below 2.0). Solvency robust: estimated equity ratio ~72.3% (26.59/36.79). Interest-bearing debt is minimal (short-term loans 0.57; long-term 0.04), and interest coverage is extremely strong at 575.84x. Maturity mismatch risk is low: ample cash covers short-term debt multiple times. Off-balance sheet obligations are not disclosed; none identified from the provided data.

Cash Flow Quality

OCF was 1.22 versus net income of 1.57, yielding OCF/NI of 0.78—below the 0.8 threshold and flagged as a potential quality concern. Working capital details (receivables/inventories) are unreported, limiting diagnosis; however, the shortfall suggests either collection timing, higher receivables, or other accruals. Capex was minimal at 0.03, implying a proxy FCF (OCF − capex) of approximately 1.19, but full investing CF is unreported, so true FCF may differ. With financing CF of -1.11 (including -0.43 share repurchases), cash generation was sufficient to fund buybacks this quarter, aided by the large opening cash balance. No apparent signs of aggressive working capital management can be confirmed or denied due to limited disclosure; monitor OCF/NI over subsequent quarters for normalization above 1.0.

Dividend Sustainability

The calculated payout ratio is 91.6%, well above the <60% benchmark for comfort. With OCF/NI at 0.78, cash coverage for dividends appears tight unless supported by the large cash balance. FCF coverage cannot be conclusively assessed due to missing full investing CF and dividends paid data; however, proxy FCF of ~1.19 suggests coverage may be borderline if dividends approximate ~1.44 (based on the payout ratio) and buybacks continue. Policy outlook: sustaining a ~90% payout may pressure balance sheet flexibility if operating cash conversion does not improve; a more balanced mix between dividends and buybacks would provide optionality. Watch for guidance updates on DPS and buyback cadence relative to cash generation.

Risk Assessment

Business Risks:

• Operating margin compression due to high SG&A intensity (45% of sales)
• Dependence on non-operating income to support ordinary and net profit
• Potential customer concentration and project timing risks typical for IT/EC solution businesses
• Execution risk in scaling services while controlling personnel and development costs

Financial Risks:

• Earnings quality risk: OCF/NI at 0.78 (<0.8 threshold)
• High effective tax rate (45.7%) reducing after-tax profitability
• Dividend policy (91.6% payout) could exceed sustainable cash generation if OCF remains weak
• Valuation volatility in investment securities affecting OCI and potentially capital

Key Concerns:

• Negative operating leverage despite revenue growth
• Visibility of recurring versus one-off gains in non-operating income and OCI
• Limited disclosure of working capital components constrains cash flow diagnostics

Investment Implications

Key Takeaways:

• Core operations weakened: operating margin fell ~690 bps YoY to 10.7%
• Net profit strength is non-operating led; sustainability uncertain
• Balance sheet remains a key support with ~72% equity ratio and ample cash
• ROIC at 11.3% indicates value creation despite lower ROE (5.9%)
• Cash conversion below par (OCF/NI 0.78) warrants monitoring
• High payout ratio (91.6%) may constrain reinvestment if OCF does not rebound

Metrics to Watch:

• Operating margin and SG&A ratio trajectory
• OCF/NI and working capital days (AR/AP/Inventory when disclosed)
• Composition and volatility of non-operating income and OCI
• Effective tax rate normalization toward ~30%
• ROIC by business/segment (if disclosed) and reinvestment returns
• Capital allocation mix: DPS vs buybacks vs growth investments

Relative Positioning: Versus domestic small/mid-cap IT/EC peers, the company shows stronger balance sheet resilience and attractive ROIC, but weaker current operating margin trajectory and lower ROE. The earnings mix is more reliant on non-operating items this quarter, increasing volatility relative to peers with more recurring operating profits.

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
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