E-Guardian Inc. FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for the nine months ended March 2026 represented a decline in both revenue and earnings, with profitability deteriorating significantly due to a combination of a lower gross margin and higher SG&A expenses. Revenue was ¥83.0B (down -3.6% year on year), Operating Income was ¥8.43B (down -30.1%), Ordinary Income was ¥8.83B (down -27.2%), and Net Income attributable to owners of the parent was ¥5.70B (down -27.0%). In addition to the decline in gross margin to 28.1% (29.7% in the previous year, -1.6pt) resulting from a higher cost-of-sales ratio, SG&A expenses increased to ¥14.87B (¥13.52B in the previous year, +9.9%) despite the decrease in revenue. This led to a decline in the Operating Margin to 10.2% (14.0% in the previous year, -3.8pt). Progress against the full-year company forecast was 69.1% for Revenue and 52.6% for Operating Income, indicating a high degree of reliance on Q4 for earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥83.0B, down -3.6% year on year, reversing the growth recorded in the previous fiscal year. The Company operates as a single segment, the Internet Security Business, and does not disclose the factors behind segment-level changes. However, its full-year forecast calls for Revenue of ¥120.1B (up +6.1% year on year), indicating a plan that incorporates a recovery in revenue in Q4 based on the 69.1% progress rate through Q3.

【Profit and Loss】Gross Profit was ¥23.3B (gross margin 28.1%, compared with 29.7% in the previous year), with the higher cost ratio weighing on earnings. In addition, SG&A expenses increased by +9.9% to ¥14.87B from ¥13.52B in the previous year. As fixed costs increased at a faster pace than the decline in revenue (-3.6%), Operating Income fell sharply to ¥8.43B (down -30.1%). In non-operating income and expenses, interest income increased to ¥0.30B (¥0.08B in the previous year), improving net financial income; consequently, the decline in Ordinary Income, at -27.2%, was less pronounced than that in Operating Income. Extraordinary income and expenses were negligible (extraordinary loss of ¥0.001B), and the impact of one-time factors was limited. Income taxes were ¥3.13B (effective tax rate 35.4%), reducing Profit Before Tax of ¥8.83B to Net Income of ¥5.70B. Overall, the results were characterized by declines in both revenue and earnings, with negative operating leverage caused by the higher cost ratio and advance increases in SG&A expenses being the primary factors.

Segment Analysis

The Company operates as a single segment, the Internet Security Business, and does not disclose segment-level revenue or profit-and-loss information.

Key Financial Indicators

【Profitability】The Operating Margin was 10.2%, down 3.8pt from 14.0% in the previous year, while the Net Profit Margin also contracted by 2.2pt to 6.9% from 9.1%. The gross margin was 28.1% (29.7% in the previous year), with higher costs serving as the starting point for the decline in profitability.【Cash Quality】Comprehensive Income was ¥5.80B, only ¥0.10B above Net Income of ¥5.70B. The primary factor was a +¥0.09B foreign currency translation adjustment, and no significant distortion in earnings quality was observed.【Investment Efficiency】ROE was 4.7%, deteriorating from the previous year primarily due to the decline in the Net Profit Margin. The total asset turnover ratio was 0.613, a relatively low level reflecting an asset structure with a high cash ratio.【Financial Soundness】The Equity Ratio increased further to 90.2% (87.8% in the previous year). With Cash and Deposits of ¥106.06B against Current Liabilities of ¥11.29B, the Company continues to maintain an extremely conservative financial foundation.

Cash Flow Analysis

Cash and Deposits were ¥106.06B, down ¥3.81B from ¥109.86B at the end of the previous year, suggesting that cash accumulation has been somewhat sluggish relative to the earnings level. In terms of working capital, accounts receivable and notes receivable increased by ¥0.45B, indicating a slight increase in funds tied up in working capital. In addition, accrued income taxes payable declined by ¥1.94B, while accrued consumption taxes payable also decreased by ¥0.78B; these items appear to have acted as cash outflows due to tax-related payments. The provision for bonuses also decreased by ¥0.59B, suggesting a cash outflow associated with bonus payments, while other accounts payable increased only ¥0.29B, resulting in a limited cash-supporting effect. On the investment front, goodwill increased to ¥0.74B (+38.2%) and intangible fixed assets increased to ¥1.08B (+34.3%), respectively, suggesting cash expenditures related to M&A or software development investment; both remained small relative to net assets. Overall, payments related to taxes and bonuses and increases in working capital made cash generation somewhat weaker relative to earnings during the period. However, supported by an Equity Ratio of 90.2% and a cash-rich balance sheet, the Company remains in a position to sufficiently fund the resources required for dividends and investment.

Earnings Quality

At the Ordinary Income level, the main items were non-operating income of ¥0.44B (including interest income of ¥0.30B) and non-operating expenses of ¥0.04B (including foreign exchange losses of ¥0.03B). Both were small and recurring items, and the impact of one-time upward or downward factors was limited. Extraordinary loss consisted only of ¥0.001B in losses on disposal of fixed assets and other items, an effectively negligible amount. Ordinary Income of ¥8.83B and Profit Before Tax of ¥8.83B were therefore virtually identical, with no temporary distortion in the earnings structure. The difference between Comprehensive Income of ¥5.80B and Net Income of ¥5.70B was limited to a +¥0.09B foreign currency translation adjustment, representing a small divergence and indicating generally stable earnings quality. On the other hand, changes in working capital, including an increase in accounts receivable and decreases in tax-related payables, somewhat weighed on cash conversion during the period. The fact that cash generation did not match the level of accounting earnings warrants monitoring.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥120.1B (up +6.1% year on year), Operating Income of ¥16.0B (up +6.7%), Ordinary Income of ¥16.3B (up +6.5%), and forecast EPS of ¥89.36. Progress through Q3 was 69.1% for Revenue, 52.6% for Operating Income, 54.2% for Ordinary Income, and ¥49.22 for EPS (55.1% progress), indicating that earnings progress is somewhat behind revenue progress. Neither the earnings forecast nor the dividend forecast was revised during the quarter, and management continues to maintain its current plan.

Shareholder Returns

The full-year dividend forecast is ¥38.00 per share. Based on approximately 11.596 million shares, calculated by deducting treasury shares from the number of shares issued at the end of the fiscal year, the total annual dividend is estimated at approximately ¥4.41B. The resulting Payout Ratio against forecast full-year Net Income attributable to owners of the parent of ¥10.33B is approximately 42.7%. The interim dividend in the same period of the previous year was ¥0, and the Company appears to maintain a policy centered on a year-end lump-sum dividend. There was no revision to the dividend forecast during the quarter, and the current level has been maintained. Given the financial foundation of an Equity Ratio of 90.2% and Cash of ¥106.06B, the Company has substantial capacity to secure funds for dividends.

Risk Factors

1. Deteriorating profitability and negative operating leverage: While Revenue declined by -3.6%, SG&A expenses increased by +9.9%, causing the Operating Margin to decline to 10.2% from 14.0% in the previous year, a decrease of 3.8pt. The gross margin also declined to 28.1% (29.7% in the previous year). If revenue recovery is delayed while the cost structure becomes increasingly fixed, the reliability of full-year margins could be affected.

2. Delayed progress against the full-year forecast: As of the cumulative Q3 results, progress was 69.1% for Revenue, compared with only 52.6% for Operating Income and 54.2% for Ordinary Income, indicating a high degree of reliance on Q4 for earnings. The degree of SG&A control and the pace of revenue recovery in Q4 will be key to achieving the full-year plan.

3. Working capital and cash flow fluctuations: While accounts receivable increased by ¥0.45B, accrued income taxes payable and accrued consumption taxes payable decreased by a combined ¥2.72B, and the provision for bonuses also declined by ¥0.59B. Cash outflows associated with tax payments and bonus payments reduced the cash balance by ¥3.81B. These working capital fluctuations could become a source of volatility in future Operating Cash Flow.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, placing the Company’s absolute profitability at a relatively high level among its peers.

Growth and Capital Efficiency

The Revenue Growth Rate is significantly below the industry median, with the Company experiencing a decline in revenue while its peers are generally recording growth.

Source: Compiled by the Company

Key Points from the Financial Results

1. Negative operating leverage has emerged, with the increase in SG&A expenses (+9.9%) exceeding the decline in Revenue (-3.6%), causing the Operating Margin to decline to 10.2% from 14.0% in the previous year, a decrease of 3.8pt. Going forward, the respective pace of revenue recovery and cost control will determine the trend in full-year margins.

2. Progress against the full-year forecast shows a gap, with Revenue at 69.1% versus 52.6% for Operating Income and 54.2% for Ordinary Income. The scale of the recovery required in Q4 will determine whether the plan is achieved. Neither the earnings forecast nor the dividend forecast had been revised as of the current quarter.

3. Increases in goodwill (+38.2%) and intangible fixed assets (+34.3%) indicate progress in M&A or development investment, although both remain small relative to net assets. With an Equity Ratio of 90.2% and Cash of ¥106.06B, the Company’s financial foundation continues to offer substantial resilience as a source of funding for such investments and shareholder returns.

Theoretical Share Price (For Reference)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥1,003–¥1,061 at Cost of Equity ±1%, and ¥1,031–¥1,032 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used (there is a timing difference 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 / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share price)

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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 discretion and responsibility, after consulting with a professional as necessary.

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