| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥156.7B | ¥148.8B | +5.2% |
| Operating Income | ¥16.8B | ¥16.4B | +2.4% |
| Ordinary Income | ¥20.6B | ¥17.2B | +19.9% |
| Net Income | ¥19.4B | ¥18.2B | +6.9% |
| ROE | 8.3% | 8.1% | - |
The cumulative results for Q2 of the fiscal year ending March 2026 achieved revenue of ¥156.7B (YoY +¥7.9B +5.2%), operating income of ¥16.8B (YoY +¥0.4B +2.4%), ordinary income of ¥20.6B (YoY +¥3.4B +19.9%), and net income attributable to owners of parent ¥18.6B (YoY +¥1.1B +6.9%), representing year-over-year revenue and profit growth. Revenue expanded due to growth across three businesses. Operating income edged up as cost control offset a decline in gross margin (73.2%, YoY -1.3pt). Ordinary income rose double-digits driven by a large increase in equity-method investment income to ¥4.0B (¥0.9B prior year). Net income was supported by a low effective tax rate of 7.5%. EPS was ¥33.58 (prior year ¥31.87, +5.4%), and ROE improved to 8.3% (from an estimated 8.0% prior year). Progress against the full year revenue forecast of ¥315.0B was 49.8%, broadly on plan, but Operating Cash Flow was ¥-3.1B, indicating delayed conversion of profits into cash; working capital management and turning the Healthcare Business profitable will be focal points in H2.
Revenue of ¥156.7B (+5.2%) was driven by double-digit growth in Healthcare +24.5% and SchoolDX +27.0%, which offset Content -2.9% and lifted overall results. Segment revenue composition: Content 52.7% (prior 57.4%), Healthcare 25.1% (prior 21.2%), Others 19.5% (prior 15.4%), SchoolDX 7.3% (prior 6.1%), showing portfolio diversification away from high-margin Content. Healthcare delivered large revenue gains due to new service rollouts and customer base expansion. SchoolDX saw revenue with multi-period recognition increase to ¥2.3B (prior ¥1.6B), advancing recurring characteristics. Content’s point-in-time revenue decreased to ¥82.3B (prior ¥84.9B), reflecting market conditions. Gross profit was ¥114.6B with gross margin 73.2% (prior 74.5%, -1.3pt) affected by upfront growth investments in Healthcare and changes in cost structure.
Profitability: Operating income ¥16.8B (+2.4%), operating margin 10.7% (prior 11.0%, -0.3pt). SG&A amounted to ¥97.8B, 62.4% of sales (prior 63.5%, -1.1pt), reflecting company-wide cost containment. The decline in gross margin caused a slight deterioration in operating margin. Equity-method investment income of ¥4.0B (prior ¥0.9B) expanded non-operating income to ¥4.2B, driving ordinary income to ¥20.6B (+19.9%). Extraordinary income included gain on sale of investment securities ¥0.2B and gain on sale of subsidiary shares ¥0.4B, totaling ¥0.4B; extraordinary losses ¥0.0B, resulting in profit before tax ¥21.0B (prior ¥25.5B, -17.5%). Corporate taxes were ¥1.6B with an effective tax rate of 7.5%, and after deducting non-controlling interests ¥0.8B, net income was ¥18.6B (+6.9%), net margin 11.9% (prior 11.8%, +0.1pt). Strong growth at the ordinary income level and low tax rate supported stable net income growth. Conclusion: revenue and profit up.
Content Business: Revenue ¥84.0B (-2.9%), operating income ¥22.4B (+13.2%), margin 26.7% (prior 22.9%, +3.8pt) — lower revenue but higher profit. Although point-in-time recognition decreased, cost efficiency improved markedly, maintaining segment leadership in profits.
Healthcare Business: Revenue ¥39.3B (+24.5%), but operating loss ¥2.5B (prior operating income ¥0.9B), margin -6.5%. The business swung to loss due to upfront investment; if revenue scale expands and fixed costs are absorbed, profitability could recover.
SchoolDX Business: Revenue ¥11.5B (+27.0%), operating income ¥4.1B (+50.6%), margin 35.7% (prior 30.1%, +5.6pt) — combining high growth and high profitability. Rising recurring revenue ratio and operating leverage contributed.
Other Businesses: Revenue ¥30.5B (+5.3%), operating income ¥6.2B (-1.4%), margin 20.3% (prior 21.7%, -1.4pt) — slight decline in operating profit but stable earnings.
Corporate expenses ¥13.4B (prior ¥13.5B) were broadly flat. Continued losses in Healthcare suppressed overall profit growth, while improvements in SchoolDX and Content profitability provided support.
Profitability: Operating margin 10.7% (prior 11.0%, -0.3pt), net margin 11.9% (prior 11.8%, +0.1pt). ROE 8.3% rose from an estimated 8.0% prior year driven by a modest increase in net margin and improved total asset turnover (0.49x, up from ~0.45x, +0.04x). Gross margin 73.2% (-1.3pt) reflects changes in business mix; SG&A ratio 62.4% (-1.1pt) helped restrain deterioration at the operating level.
Cash quality: Operating Cash Flow (OCF) -¥3.1B, OCF/Net Income -0.17x; EBITDA ¥23.2B (Operating income + depreciation ¥6.4B) and OCF/EBITDA -0.13x indicate weak cash conversion. Days Sales Outstanding (DSO) 111 days (accounts receivable ¥47.6B ÷ revenue ¥156.7B × 365 days ÷ 2) is long. Contract liabilities ¥17.8B (prior ¥27.3B, -34.7%) decreased, shrinking deferred revenue. Timing of tax payments ¥7.9B also contributed to pressure. Free Cash Flow was -¥13.1B (Operating CF -¥3.1B + Investing CF -¥10.0B), not covering dividends ¥5.6B, increasing reliance on cash on hand.
Investment efficiency: CapEx/Depreciation 0.11x (CapEx ¥0.7B ÷ depreciation ¥6.4B), very low. Intangible asset investment ¥7.4B was the main driver; tangible investment was restrained.
Financial soundness: Equity Ratio 73.1% (prior 67.3%, +5.8pt), current ratio 345.6%, quick ratio 345.6%, cash and deposits ¥151.3B, indicating a net cash position. Long-term borrowings ¥5.9B (prior ¥9.6B, -38.6%), interest-bearing debt limited. Interest coverage 185x (EBITDA ¥23.2B ÷ interest expense ¥0.1B) shows minimal interest burden.
Operating CF was -¥3.1B (prior ¥19.7B, -115.7%), a large delay in profit-to-cash conversion relative to net income ¥18.6B (-0.17x). Operating CF before working capital changes was ¥4.9B (prior ¥21.1B), contributed by equity-method profit -¥4.0B, depreciation ¥6.4B, goodwill amortization ¥0.2B, and corporate tax accruals ¥1.6B. However, increases in accounts receivable -¥7.8B (lengthening DSO to 111 days), decreases in contract liabilities -¥9.2B (drawdown of deferred revenue), and tax payments -¥7.9B were major timing pressures. Investing CF was -¥10.0B, primarily software and other intangible asset acquisitions -¥7.4B, CapEx -¥0.7B, acquisitions of subsidiary shares -¥2.9B, and purchase of investment securities -¥0.6B; proceeds from sale of subsidiary shares +¥1.5B partially offset outflows. Free Cash Flow was -¥13.1B, indicating insufficient internal funds for investments and dividends. Financing CF was -¥14.3B, driven by dividend payments -¥5.6B, long-term debt repayments -¥3.7B, and dividends to non-controlling interests -¥0.7B. Cash decreased from ¥178.2B at the beginning of the period to ¥151.3B at period-end, a decline of ¥26.9B, but liquidity remains ample and short-term payment capacity is not a concern. Correcting working capital and resuming accumulation of contract liabilities are essential to improve cash generation.
Of ordinary income ¥20.6B, operating income ¥16.8B accounts for 81.6%, indicating core business profitability, but equity-method investment income ¥4.0B comprised the bulk of non-operating income and boosted ordinary income by 19.9%. Equity-method gains reflect improved performance of equity partners but are susceptible to external factors and thus contain sustainability uncertainty. Non-operating expenses ¥0.3B (interest expense ¥0.1B, foreign exchange losses ¥0.2B) are limited, so financial cost burden is light. Extraordinary items included gain on sale of investment securities ¥0.2B and gain on sale of subsidiary shares ¥0.4B, for one-off gains ¥0.4B, while impairment on investment securities ¥0.1B was recognized, leaving a net positive. Profit before tax ¥21.0B and corporate tax ¥1.6B resulted in a low effective tax rate of 7.5%, aided by utilization of deferred tax assets and tax benefits. After deducting non-controlling interests ¥0.8B, net income ¥18.6B represents high-quality earnings growth supported by strong ordinary income growth and low taxes.
Comprehensive income was ¥20.0B (net income ¥19.4B + other comprehensive income ¥0.6B) and the ¥0.6B difference between comprehensive income and net income is small, mainly foreign currency translation adjustments ¥0.5B and retirement benefit adjustments -¥0.1B; valuation differences on securities were nearly neutral, indicating high transparency between comprehensive and net income.
On the accrual side, negative accruals are evident: Operating CF -¥3.1B versus net income ¥18.6B. Increases in accounts receivable and DSO, and decreases in contract liabilities delayed cash realization of profits, reducing near-term earnings quality.
Full year revenue forecast ¥315.0B (+5.3%); H1 results ¥156.7B represent 49.8% progress, generally on plan. Full year forecasts for operating income and ordinary income are undisclosed, but maintaining H1 operating margin of 10.7% would require a similar level of profitability in H2. Given H1 OCF -¥3.1B and contract liabilities decrease -¥9.2B, H2 normalization of working capital and recovery of deferred revenue will be key to full-year cash generation. Turning the Healthcare Business from a ¥2.5B operating loss to profit in H2 is critical; continued high growth in SchoolDX and maintaining Content profitability are prerequisites to achieving full year targets. Interim dividend is ¥10 with a forecast year-end dividend of ¥10 (annual ¥20 likely), indicating a stable dividend policy. No forecast revisions have been made; company guidance credibility is assessed as neutral.
Interim dividend ¥10 (total dividend payout ¥5.6B), payout ratio approximately 32% (based on net income attributable to owners of parent ¥18.6B), a reasonable level relative to earnings. Assuming a year-end dividend of ¥10, annual dividend ¥20 implies full year payout ratio in the low-30% range, maintaining a stable dividend approach. However, Free Cash Flow -¥13.1B vs dividend ¥5.6B yields FCF coverage -2.16x, indicating insufficiency and that dividends were funded from cash on hand. Share buybacks were effectively zero on a cash flow basis, so the Total Return Ratio equals the payout ratio. Given cash and deposits ¥151.3B, short-term dividend payment capacity is not a concern, but sustainability of dividends depends on OCF recovery and working capital correction. Shareholders' equity ¥198.0B, treasury stock ¥25.7B, shares outstanding 60.4 million (treasury stock 4.9 million), weighted average shares during period 55.5 million. While the dividend policy emphasizes shareholder returns, balancing with growth investments (intangible asset investment ¥7.4B) suggests maintaining the dividend level is reasonable until OCF normalizes.
Accounts receivable collection delay risk: DSO 111 days is prolonged, and accounts receivable ¥47.6B (prior ¥40.9B, +16.5%) growth heavily pressures Operating CF. If customer payment delays or lax credit management materialize, cash generation could deteriorate further and create liquidity risk. Allowance for doubtful accounts ¥6.2 million (prior ¥17.0 million, -63.5%) has been reduced, leaving thinner reserves against credit risk.
Risk of continued Healthcare business losses: Operating loss ¥2.5B (prior operating income ¥0.9B) despite revenue growth. If fixed cost burden and upfront growth investments continue to delay profitability, dilution of company-wide margins could be prolonged, pressuring ROE and shareholder return capacity. Depending on market size and competitive landscape, additional investment beyond assumptions may be needed, making timing of profit contribution uncertain.
Revenue recognition volatility risk due to decrease in contract liabilities: Contract liabilities ¥17.8B (prior ¥27.3B, -34.7%) have declined significantly, indicating drawdown of deferred revenue and raising concerns about shrinking recurring revenue base. If new orders and contract renewals in H2 fall short of plan, revenue growth could slow and Operating CF could worsen. Customer churn or rising cancellation rates that impede recovery of contract liabilities would raise doubts about medium- to long-term growth sustainability.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 10.7% | 14.0% (3.8%–18.5%) | -3.2pt |
| Net Margin | 12.4% | 9.2% (1.1%–14.0%) | +3.2pt |
Operating margin is 3.2pt below the industry median, indicating mid-level profitability, while net margin exceeds the median by 3.2pt due to equity-method gains and low tax rate, reflecting high efficiency at the final profit stage.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 5.2% | 21.0% (15.5%–26.8%) | -15.8pt |
Revenue growth is well below the industry median of 21.0%, placing the company in a low-growth position within the IT & Communications sector. High growth in SchoolDX and Healthcare is offset by Content decline, leaving company-wide growth at the lower end of the sector.
※Source: Company compilation
Sustainability of SchoolDX’s high-growth, high-margin model: With revenue +27.0% and margin 35.7%, SchoolDX combines strong growth and profitability. Rising recurring revenue ratio is enabling operating leverage. Future order trends, contract renewal rates, and ARPU movement will be critical for company-wide growth. Government education DX initiatives and budget allocation trends should also be monitored.
Correction of working capital and restoration of cash generation: Prolonged DSO of 111 days and a -34.7% decline in contract liabilities caused Operating CF to turn negative relative to net income (-0.17x). If H2 shows accelerated receivable collection and rebuilding of contract liabilities, OCF normalization could enable both dividend sustainability and growth investment. Continued working capital deterioration would, despite ample cash on hand, lower capital efficiency and constrain shareholder return capacity.
Timing of Healthcare business profitability and impact on company margins: Despite revenue +24.5%, Healthcare recorded an operating loss of ¥2.5B. If upfront investments taper and fixed cost absorption improves, a return to profitability could lift company operating margin and ROE. If profitability is delayed, margin dilution could persist and improvement versus industry median (operating margin -3.2pt) will be harder to achieve. Progress on Healthcare profitability is a key determinant of post-fiscal-year performance and shareholder value creation.
This report is an earnings analysis document automatically generated by AI from XBRL financial statement data. It is not a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed before making investment choices.