Cybozu,Inc. FY2026 Q2 Earnings Report

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Executive Summary

The key feature of the current period was the achievement of higher revenue and earnings while maintaining a highly profitable business structure, supported by a gross margin of 90.9%. Revenue was ¥207.8B (+16.1% YoY), Operating Income was ¥59.6B (+15.5%), Ordinary Income was ¥60.6B (+21.1%), and Net Income was ¥41.4B (+19.6%). A foreign exchange gain of ¥0.8B recorded in non-operating income increased the growth rate at the ordinary income level, resulting in an increase in Ordinary Income that exceeded the growth in Operating Income.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥207.8B, representing double-digit growth of +16.1% YoY. The Company operates in a single segment (software development and sales), and contract liabilities (deferred revenue) increased by +¥5.5B YoY to ¥60.0B, providing a foundation for future revenue recognition. Revenue growth was achieved while continuing growth investments, including research and development expenses of ¥8.9B (4.3% of revenue) and advertising expenses of ¥32.4B.

【Profit and Loss】Operating Income was ¥59.6B (+15.5%). As SG&A expenses (+16.6%) grew slightly faster than revenue, the Operating Income margin contracted marginally from the previous year to 28.7%. Meanwhile, Ordinary Income increased by +21.1% to ¥60.6B, exceeding the growth in Operating Income, due to a foreign exchange gain of ¥0.8B in non-operating income (compared with a foreign exchange loss in the previous year). Although the Company recorded an extraordinary loss of ¥1.3B (including impairment losses on investment securities), Net Income increased by +19.6% to ¥41.4B. The Company achieved higher revenue and earnings, maintaining profitability at a high level within the industry.

Segment Analysis

The reported business consists of a single segment, “Software Development and Sales.” Segment-level profit and loss disclosure has been omitted because its disclosure materiality is limited.

Key Financial Indicators

【Profitability】The Company maintained high margins, with an Operating Income margin of 28.7% and a Net Income margin of 19.9% (Net Income of ¥41.4B / Revenue of ¥207.8B). The gross margin of 90.9% supports a high-contribution-margin business structure.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥43.4B, covering Net Income, but decreased by -19.5% YoY. Increased payments for corporate income taxes and other taxes (-¥28.4B) and an increase in trade receivables (-¥1.9B) restrained cash conversion.【Investment Efficiency】ROE was 23.5% and the Equity Ratio was 59.8%, indicating high capital efficiency without reliance on financial leverage.【Financial Soundness】Long-term borrowings were only ¥0.2B, representing a virtually debt-free financial structure. Current assets of ¥176.3B exceeded current liabilities of ¥116.4B, indicating limited concern regarding short-term liquidity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥43.4B, exceeding Net Income of ¥41.4B, but decreased by -19.5% YoY. The primary factors were an increase in payments for corporate income taxes and other taxes to ¥28.4B and an increase in trade receivables (-¥1.9B). Investing Cash Flow was -¥27.8B. Capital expenditures of ¥14.8B exceeded depreciation and amortization of ¥11.2B, indicating the continuation of growth investments. Financing Cash Flow was -¥48.5B, with shareholder returns, including share repurchases of ¥22.4B and dividend payments, serving as the primary source of cash outflow. As a result, Free Cash Flow (FCF) remained at ¥15.6B, and cash and deposits decreased from the previous year to ¥86.7B because total shareholder returns exceeded FCF.

Earnings Quality

The earnings structure is centered on recurring operating business profits. Non-operating income was minor at approximately 0.8% of revenue, and the foreign exchange gain of ¥0.8B is viewed as having limited sustainability because it represented a reversal from the foreign exchange loss recorded in the previous year. The extraordinary loss was ¥1.3B, and temporary factors such as impairment losses on investment securities slightly reduced Net Income. The difference between Ordinary Income of ¥60.6B and Net Income of ¥41.4B was primarily attributable to corporate income taxes and other taxes of ¥17.9B (an effective tax rate of approximately 30%), with no particular abnormalities. The fact that OCF covered Net Income indicates high earnings quality from the perspective of cash realization; however, changes in working capital and increased tax payments partially restrained cash conversion.

Earnings Forecast and Guidance

Progress against the Full-Year plan was 49.3% for revenue (¥207.8B / ¥421.7B), 56.7% for Operating Income (¥59.6B / ¥105.1B), and 56.5% for Ordinary Income (¥60.6B / ¥107.3B). Progress on the earnings front exceeded the standard first-half progress rate of 50%. No revisions have been made to the earnings forecast, and the accumulation of contract liabilities may support revenue recognition in the second half.

Shareholder Returns

No interim dividend will be paid, but the Company has announced a Full-Year dividend forecast of ¥50 per share. Based on the Company’s forecast EPS of ¥163.26, the Payout Ratio is approximately 30.6%. During the period, the Company conducted share repurchases of ¥22.4B. Total shareholder returns, including dividends and share repurchases, exceeded the period’s FCF of ¥15.6B.

Risk Factors

1. Risk of extended collection periods for trade receivables: Accounts receivable and notes receivable totaled ¥54.1B and contributed to the year-on-year decrease in OCF (-19.5%). Trends in collection efficiency may affect the Company’s future cash-generating capacity.

2. Risk of reversal in non-operating factors: Part of the growth in Ordinary Income (+21.1%) depended on the one-time factor of a ¥0.8B foreign exchange gain. If this factor reverses, the pace of earnings growth at the ordinary income level may slow.

3. Funding burden from shareholder returns: Total returns consisting of dividends and share repurchases exceeded FCF of ¥15.6B, and cash and deposits decreased to ¥86.7B. Continued shareholder returns at this pace will require improvements in cash-generating capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin significantly exceeded the industry median, placing the Company among the more profitable companies in the IT and communications sector.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, placing the Company around the middle of the industry in terms of growth speed.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Against a backdrop of a high gross margin (90.9%) and debt-free management, the Company maintained industry-leading levels in both capital efficiency and profitability, with an Operating Income margin of 28.7% and ROE of 23.5%.

2. Progress against the Full-Year plan was solid, exceeding 50% on the earnings front. The accumulation of contract liabilities (deferred revenue) of ¥60.0B can be observed as a structural factor supporting revenue recognition from the second half onward.

3. The year-on-year decrease in OCF (-19.5%) and the fact that total shareholder returns exceeded FCF warrant attention in terms of the balance between cash-generating capacity and the pace of shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥881–¥937 at ±1% for the cost of equity, and ¥892–¥934 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥4.7 per share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• Because non-controlling interests are included in net assets, 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 solely from publicly disclosed data; 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 summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q2 performance was strong, with double-digit revenue and profit growth while maintaining very high software economics. Revenue increased 16.1% YoY to ¥20.78bn. Operating income rose 15.5% to ¥5.96bn. Net income attributable to owners increased 17.5% to ¥4.07bn. The operating margin was 28.7%, down modestly by 20bp from 28.8% a year earlier, as operating costs broadly rose in line with growth investment. The gross margin nevertheless improved by 10bp to 90.9%, underlining the scalability of the software-development-and-sales business. SG&A increased 16.5% YoY to ¥12.93bn, marginally faster than revenue, which explains the small operating-margin dilution. Advertising expense grew 26.3% to ¥3.24bn and R&D expense increased 27.0% to ¥0.89bn, indicating continued prioritization of customer acquisition and product development. Ordinary income grew faster than operating income, up 21.1%, supported by ¥0.83bn of FX gains versus FX losses in the prior-year period. A ¥1.30bn extraordinary loss reduced profit before tax relative to ordinary income, but net margin still improved 20bp YoY to 19.6%. Operating cash flow of ¥4.34bn exceeded net income of ¥4.07bn, producing an OCF/net-income ratio of 1.07x and supporting earnings recognition quality. However, cash conversion from EBITDA was only 0.61x, below the 0.7x quality-alert threshold, because cash tax payments, working-capital movements, and other operating cash outflows constrained cash realization. Free cash flow was positive at ¥1.56bn after ¥1.48bn of capital expenditures. Share repurchases of ¥2.24bn exceeded FCF, contributing to a ¥3.12bn reduction in cash during the first half. The balance sheet remains conservatively financed in debt terms, with only ¥0.19bn of interest-bearing debt and debt/EBITDA effectively at zero. Full-year guidance is unchanged, and first-half operating-income progress of 56.7% is ahead of the standard 50% midpoint pace. The principal issue for the second half is whether elevated sales and R&D spending can sustain revenue growth without further margin compression, while capital returns remain aligned with internally generated cash flow.

Profitability Analysis

The annualized DuPont ROE is 46.2%, decomposed into a 19.6% net profit margin, 1.412x annualized asset turnover, and 1.67x financial leverage. The main source of the high ROE is profitability and efficient asset utilization rather than debt financing, given negligible interest-bearing debt. The 19.6% net margin is excellent for an IT services/software company and improved 20bp YoY, despite the operating-margin decline. Gross margin increased to 90.9% from 90.8%, confirming that revenue growth retained the inherently high incremental economics of cloud software and related services. Operating margin fell 20bp to 28.7% because SG&A rose 16.5%, slightly above the 16.1% revenue increase. Within SG&A, advertising spending rose 26.3% and R&D spending rose 27.0%; these investments are the principal reason operating leverage was not fully realized in the half year. R&D represented 4.3% of revenue, while advertising represented 15.6%, consistent with active investment in product development and demand generation. EBITDA was ¥7.09bn and the EBITDA margin was 34.1%, showing strong cash-profit capacity before depreciation, amortization, and goodwill amortization. Under JGAAP, goodwill amortization of ¥0.11bn reduced reported operating profit and net income; it represented only 1.5% of EBITDA, so accounting-standard distortion is immaterial. The tax burden was 0.685, equivalent to a 30.2% effective tax rate, while the interest burden was 0.995, demonstrating that financing costs have virtually no effect on returns. The high-return profile appears operationally sustainable so long as subscription-like software revenue and customer retention support continued scale benefits, but near-term margin expansion is conditional on SG&A growth moderating relative to revenue.

Growth Assessment

Revenue growth of 16.1% YoY to ¥20.78bn demonstrates continued expansion in the sole reported software development and sales segment. Because the company reports one segment, this software business is the core business, generating all disclosed revenue and operating income. Gross profit increased 16.2% YoY to ¥18.90bn, essentially matching revenue growth and preserving the 90.9% gross margin. Operating income growth of 15.5% was slightly slower than revenue growth due to elevated advertising and R&D investment. Net income growth of 17.5% exceeded operating-income growth, aided by the year-on-year swing to ¥0.83bn of FX gains within non-operating income. The growth mix therefore includes a modest non-operating contribution, although operating profit remains the dominant driver of earnings. Full-year company guidance calls for revenue of ¥42.17bn, up 12.7% YoY, and operating income of ¥10.51bn, up 4.1% YoY. First-half revenue progress is 49.3% of the full-year forecast, broadly in line with the standard 50% midpoint pace. Operating-income progress is 56.7%, 6.7 percentage points ahead of the standard midpoint pace. Ordinary-income progress is 56.5%, and attributable-profit progress is 54.6%, also ahead of the midpoint pace. The first-half outperformance versus the implied seasonal pace provides some buffer, but management has not revised guidance. Growth sustainability depends on the payback from the faster growth in advertising and R&D expenditures and on continued preservation of the exceptionally high gross margin. CapEx/depreciation of 1.32x indicates investment is running above depreciation, consistent with ongoing capacity and product investment rather than harvesting the installed base.

Financial Health

Liquidity is sound, with current assets of ¥17.63bn against current liabilities of ¥11.64bn. The current ratio and quick ratio are both 151.5%, meeting the healthy 1.5x liquidity benchmark. Working capital was positive at ¥6.00bn. Cash and deposits were ¥8.67bn, equal to 29.5% of total assets, providing material near-term funding flexibility. Accounts receivable were ¥5.41bn, or 18.4% of total assets, while inventory was immaterial at ¥0.02bn, consistent with a software-led model. Contract liabilities of ¥6.00bn are a major current-liability component and represent advance customer billings that support operating liquidity, although they also require continued service delivery. There is no material debt maturity mismatch: current assets exceed current liabilities and interest-bearing debt is only ¥0.19bn. Debt/EBITDA was effectively 0.00x and debt/capital was 0.1%, indicating exceptionally low financial leverage from borrowings. The reported debt-to-equity ratio of 0.67x remains below the 1.0x conservative benchmark. Equity totaled ¥17.60bn, supporting a 59.5% capital adequacy ratio. Cash and deposits declined ¥3.02bn YoY, or 25.9%, to ¥8.67bn, primarily reflecting capital expenditures, investment-security purchases, dividends paid, and share repurchases. Treasury stock increased by ¥2.20bn YoY to negative ¥6.45bn, reflecting the buyback program and reducing reported equity. Retained earnings increased ¥2.22bn YoY to ¥16.62bn, demonstrating that earnings accumulation more than supported underlying capital despite distributions. Deferred tax assets of ¥1.93bn and investment securities of ¥3.03bn are meaningful balance-sheet items to monitor, while the low debt burden materially limits solvency risk.

Notable B/S Changes

Cash and deposits: -¥3.02bn (-25.9% YoY) to ¥8.67bn - investment activity and capital returns reduced liquidity, although cash remains substantial and current/quick ratios are both 151.5%. Treasury stock: -¥2.20bn (-51.8% YoY) to -¥6.45bn - reflects the ¥2.24bn first-half repurchase program; it enhances per-share capital allocation but reduces equity and cash. Inventories: -¥0.04bn (-66.7% YoY) to ¥0.02bn - immaterial in absolute terms and consistent with a software-centered business model.

Cash Flow Quality

Operating cash flow was ¥4.34bn, exceeding attributable net income of ¥4.07bn and yielding an OCF/net-income ratio of 1.07x. This is a favorable earnings-quality indicator, as reported profits were more than fully converted into operating cash over the half year. The accruals ratio was negative 0.9%, also indicating limited reliance on accrual-based earnings. Contract liabilities increased by ¥0.55bn, providing a recurring source of operating cash from advance customer billings. Trade receivables increased by ¥0.19bn, a moderate use of cash that should be monitored against revenue growth but does not currently indicate aggressive working-capital behavior. The quality alert is the 0.61x OCF/EBITDA cash-conversion ratio, below the 0.7x threshold. Its root cause is that EBITDA of ¥7.09bn was reduced materially by cash taxes paid of ¥2.84bn, together with working-capital and other operating-cash movements. This is less concerning than an OCF/net-income shortfall because OCF remains above net income, but it means EBITDA should not be treated as immediately distributable cash. Capital expenditures were ¥1.48bn, producing positive FCF of ¥1.56bn. CapEx/depreciation of 1.32x indicates reinvestment above the depreciation charge, which is consistent with growth investment but reduces near-term free-cash generation. Investing cash outflow totaled ¥2.78bn, including ¥1.05bn of investment-security purchases in addition to capital expenditures. Financing cash outflow was ¥4.85bn, led by ¥2.24bn of share repurchases and ¥1.85bn of dividends paid. Consequently, cash declined by ¥3.12bn during the half despite positive operating cash flow. The key cash-flow issue is not operating-profit conversion into OCF, which remains acceptable, but whether the pace of shareholder distributions and investments can remain covered by recurring FCF.

Dividend Sustainability

No interim Q2 dividend was declared. The unchanged full-year DPS forecast is ¥50, compared with forecast EPS of ¥163.26, implying a forecast dividend payout ratio of approximately 30.6%. This prospective dividend payout is comfortably below the 60% sustainability benchmark. Based on the forecast attributable profit of ¥7.45bn and outstanding shares of 52.76 million, the indicated annual cash dividend requirement is approximately ¥2.64bn, before any impact from treasury-share treatment. First-half FCF was ¥1.56bn, so first-half FCF alone does not cover the indicated annual dividend requirement, although the full-year FCF outcome will depend on second-half operating cash flow and investment levels. Cash and deposits of ¥8.67bn and minimal interest-bearing debt provide substantial balance-sheet capacity to support the dividend. Capital allocation was more aggressive through share repurchases: ¥2.24bn was spent in the first half. Including ¥1.85bn of cash dividends paid, total cash shareholder returns were ¥4.08bn, approximately 100.4% of first-half attributable profit; this total return ratio is elevated and reflects the timing of cash dividends as well as buybacks. Buybacks also exceeded first-half FCF by ¥0.81bn. The forecast dividend itself appears sustainable, whereas the sustainability of combined dividends and repurchases depends on second-half FCF recovery and management's willingness to draw on cash balances.

Risk Assessment

Business risks include Growth-investment execution risk: advertising expense rose 26.3% YoY and R&D expense rose 27.0%, faster than revenue growth of 16.1%; insufficient sales productivity or product monetization would pressure margins., IT and cloud-software competition risk: sustaining high gross margins and customer demand requires continued product differentiation, reliable service, cybersecurity, and retention amid rapid technology change., Foreign-exchange and investment-market volatility: ordinary income benefited from ¥0.83bn of FX gains, while valuation-related comprehensive income was negative, demonstrating that non-operating and OCI results can be volatile., Contract-liability fulfillment risk: ¥6.00bn of contract liabilities supports liquidity but requires the company to maintain service quality and delivery capabilities over future periods..

Financial risks include Low cash conversion alert: OCF/EBITDA was 0.61x, below the 0.7x threshold. The immediate cause is substantial cash-tax and other operating-cash absorption; the impact is lower distributable cash than EBITDA alone suggests., Capital-return coverage risk: first-half share repurchases of ¥2.24bn exceeded FCF of ¥1.56bn, and combined cash dividends paid plus buybacks approximated 100.4% of first-half attributable profit., Cash-balance reduction: cash and deposits declined 25.9% YoY to ¥8.67bn as investments and shareholder returns exceeded internally generated post-investment cash flow..

Key concerns include Highest priority is the conversion of elevated sales and R&D spending into durable revenue growth, because SG&A growth has already produced a 20bp operating-margin decline., The low 0.61x EBITDA cash conversion is a moderate concern: it does not currently undermine earnings quality because OCF/net income is 1.07x, but it reduces flexibility if capital returns stay elevated., The ¥1.30bn extraordinary loss reduced pre-tax earnings and should be monitored for recurrence, although the disclosed impairment component was only ¥0.01bn., The company has very low borrowing risk, so the investment-risk profile is driven more by operating-execution, cash-allocation, technology, and competitive risks than by leverage..

Investment Implications

Key takeaways include Revenue grew 16.1% YoY and operating income grew 15.5% YoY, preserving a high 28.7% operating margin., The 90.9% gross margin and 34.1% EBITDA margin evidence highly scalable software economics., Annualized ROE of 46.2% is driven primarily by a 19.6% net margin and 1.412x annualized asset turnover, not debt financing., First-half operating-income progress reached 56.7% of unchanged full-year guidance, ahead of the standard 50% midpoint pace., OCF exceeded net income, but low 0.61x EBITDA cash conversion and buybacks above FCF make cash deployment a central monitoring item..

Metrics to watch include Revenue growth relative to advertising and R&D growth, Operating-margin trajectory after the first-half 20bp YoY decline, OCF/EBITDA cash conversion and cash taxes paid, Free cash flow relative to dividends and share repurchases, Cash and deposits following the ¥3.12bn first-half decline, Progress against full-year revenue guidance of ¥42.17bn and operating-income guidance of ¥10.51bn, FX gains/losses and valuation movements in investment securities.

Regarding relative positioning, Cybozu displays a stronger-than-typical profitability and balance-sheet profile for a domestic IT/software company: gross margin is 90.9%, operating margin is 28.7%, annualized ROE is 46.2%, and debt/EBITDA is effectively zero. Relative differentiation rests on converting elevated growth spending into sustained revenue expansion while maintaining cash conversion and ensuring that buybacks do not structurally outpace FCF.