Digital Arts (2326): FY2025 Results Summary — Record Contracts, up 57.1%, on GIGA School Phase 2

This article is based on publicly available IR materials and is not a recommendation to buy or sell any specific securities.

Note: Digital Arts Inc. labels the fiscal year ended March 31, 2026 as “FY Mar. 2026” (FY03/26); this site classifies the most recent completed fiscal year as FY2025, and all labels in the text, tables and segment data below are kept exactly as they appear in the company’s materials.

Digital Arts Inc. reported consolidated results for the fiscal year ended March 31, 2026, in which contracts reached a record high of 16,604 million yen, up 57.1% year on year. The company states that contracts grew sharply because the project acquisition rate for Phase 2 of the GIGA School Concept was high and project unit prices increased. Net sales rose 8.5% to 10,835 million yen and operating profit rose 5.1% to 4,791 million yen, while profit attributable to owners of parent increased 7.7% to 3,427 million yen. The materials are the reference slides accompanying the consolidated financial results released on May 7, 2026.

Understanding “Contracts” and “Net Sales”

Digital Arts presents two headline top-line indicators. The presentation defines “Contracts” as the total amount of orders received by the company from its customers during the current accounting period (essentially equivalent to orders received), noting that as an indicator it shows the company’s current performance in a more timely manner than net sales. “Net sales” is defined as the total of the amount of contracts acquired before the previous period that will be recognized as net sales in the current accounting period (net sales carried over) and the amount of contracts acquired during the current accounting period minus the amount of contracts that will be deferred and recognized as net sales in the next period and thereafter (deferred net sales). The company also discloses “Contract operating profit,” defined in the materials as Contracts minus Cost of sales minus Selling, general and administrative expenses.

Consolidated Results (Full-Year Actual)

Contracts of 16,604 million yen came in below the full-year forecast of 19,000 million yen announced on October 30, 2025, and net sales of 10,835 million yen were below the 11,800 million yen forecast, while operating profit of 4,791 million yen compared with a 5,607 million yen forecast. Contract operating profit more than doubled to 10,560 million yen (+105.2%) and the contract operating profit margin rose to 63.6% from 48.7%. The operating margin was 44.2%, down from 45.7%, and EBITDA — defined in the materials as operating profit plus depreciation plus tax expenses included in operating expenses — was 5,864 million yen, up 5.4%.

Item (Millions of Yen)	FY Mar. 2025	FY Mar. 2026	YoY	FY Mar. 2026 Full-Year Forecast
Contracts	10,570	16,604	+57.1%	19,000
Net Sales	9,982	10,835	+8.5%	11,800
Cost of Sales	2,948	3,334	+13.1%	3,296
Gross profit	7,033	7,500	+6.6%	8,503
Selling, general and administrative expenses	2,474	2,708	+9.5%	2,895
Contract operating profit	5,147	10,560	+105.2%	–
Contract operating profit margin (%)	48.7%	63.6%	–	–
Operating profit	4,558	4,791	+5.1%	5,607
Operating margin (%)	45.7%	44.2%	–	47.5%
Ordinary profit	4,562	4,840	+6.1%	5,627
Profit attributable to owners of parent	3,183	3,427	+7.7%	3,880
EBITDA	5,566	5,864	+5.4%	–

By provision type, cloud service products accounted for 11,412 million yen of consolidated contracts, up 119.6%, lifting the cloud ratio of contracts to 68.7% from 49.2%, while license sales products and others fell 3.4% to 5,192 million yen. On a net sales basis, cloud service products rose 20.6% to 5,565 million yen for a 51.4% share (from 46.2%), and license sales products and others declined 1.8% to 5,269 million yen. Quarterly sales of cloud service products reached 1,539 million yen in the fourth quarter of FY Mar. 2026, which the company describes as a new high, and it expects the recurring revenue foundation to continue expanding.

Results by Market

In the enterprise sector market, the company says double-digit growth of contracts was achieved as demand for cloud-based security measures was captured. In the public sector market, the acquisition of projects for Phase 2 of the GIGA School Concept drove a major increase in contracts, which more than doubled. Contracts and net sales for the full year both reached record highs (net sales excluding Digital Arts Consulting, the consolidated subsidiary whose shares were transferred in the fiscal year ended March 31, 2024).

Market (Millions of Yen)	Contracts FY Mar. 2025	Contracts FY Mar. 2026	YoY	Net Sales FY Mar. 2025	Net Sales FY Mar. 2026	YoY
Enterprise	5,016	5,564	+10.9%	4,783	5,176	+8.2%
Public	5,146	10,639	+106.7%	4,788	5,256	+9.8%
Consumer	408	400	-1.9%	409	402	-1.8%
Total	10,570	16,604	+57.1%	9,982	10,835	+8.5%

By product, enterprise sector contracts for the i-FILTER series rose 6.7% to 3,683 million yen and the m-FILTER series rose 18.7% to 1,538 million yen; the company says i-FILTER contracts and net sales were buoyant as demand for cloud-based web access security measures was steadily captured, and that m-FILTER maintained a high growth rate on demand for measures against threats such as spoofed email, malicious file attachments and URLs. In the public sector market, i-FILTER series contracts surged 147.2% to 9,404 million yen on the acquisition of GIGA School Concept projects and large-scale projects for public-sector organizations, while m-FILTER series contracts declined 3.2% to 1,082 million yen due to the absence of the projects for Security Improvements for Local Governments gained in the same period of the previous year.

Market / Product (Millions of Yen)	Contracts FY Mar. 2025	Contracts FY Mar. 2026	Net Sales FY Mar. 2025	Net Sales FY Mar. 2026
Enterprise: i-FILTER series	3,453	3,683	3,307	3,489
Enterprise: m-FILTER series	1,296	1,538	1,179	1,369
Enterprise: Other products	266	342	297	317
Enterprise: Total	5,016	5,564	4,783	5,176
Public: i-FILTER series	3,804	9,404	3,758	4,243
Public: m-FILTER series	1,118	1,082	959	906
Public: Other products	223	152	71	106
Public: Total	5,146	10,639	4,788	5,256

On Phase 2 of the GIGA School Concept, the company reports that i-FILTER secured a market share of 70%, larger than the 53% share it held in Phase 1, with competitors (8 companies) taking 30%, and that order unit prices were approximately 30% higher than in Phase 1. The figures are based on the company’s internal survey of 1,741 Boards of Education conducted in March 2026.

Balance Sheet and Order Backlog

Total assets increased 23.1% to 27,865 million yen, with cash and deposits up 28.6% to 23,083 million yen on growth in orders. Current liabilities rose 79.6% to 9,358 million yen as advances received increased 91.1% to 7,800 million yen following the sharp increase in contracts for cloud service products. Net assets rose 6.3% to 18,454 million yen. The equity ratio fell to 66.1% from 76.6%, which the company attributes to the increase in advances received, while ROE was 19.2% (19.1% in the prior year) and ROA was 13.6% (14.1%). The order backlog grew 92.3% to 12,006 million yen from 6,243 million yen a year earlier, which the company attributes to extremely strong orders for Phase 2 of the GIGA School Concept and Next-Generation School Affairs DX projects.

Full-Year Forecast for the Fiscal Year Ending March 31, 2027

For the fiscal year ending March 31, 2027, the company forecasts net sales of 12,000 million yen (+10.8%) and operating profit of 5,400 million yen (+12.7%), with profit attributable to owners of parent of 3,770 million yen (+10.0%). Contracts are forecast to decline 18.7% to 13,500 million yen because the acquisition of projects for Phase 2 of the GIGA School Concept has already peaked, while net sales are expected to increase on the accumulation of existing contracts, the expansion of sales of new and related products, and the progress in the posting of sales from cloud service-related projects obtained in and before FY Mar. 2026. Cost of sales is projected to rise 14.6% to 3,823 million yen on higher depreciation and communication expenses, and SG&A expenses to rise 2.5% to 2,776 million yen, including around 40 million yen to be invested in increasing base pay, recruitment and training.

Item (Millions of Yen)	FY Mar. 2026 Full-Year Results	FY Mar. 2027 Full-Year Forecast	Change	% Change
Contracts	16,604	13,500	-3,104	-18.7%
Net sales	10,835	12,000	+1,164	+10.8%
Cost of sales	3,334	3,823	+488	+14.6%
Gross profit	7,500	8,176	+676	+9.0%
Gross profit point	69.2%	68.1%	–	–
Selling, general and administrative expenses	2,708	2,776	+67	+2.5%
Operating profit	4,791	5,400	+609	+12.7%
Operating margin	44.2%	45.0%	–	–
Ordinary profit	4,840	5,505	+664	+13.7%
Profit attributable to owners of parent	3,427	3,770	+342	+10.0%

By market, consolidated net sales for FY Mar. 2027 are forecast at 5,691 million yen in the enterprise sector (+9.9%), 5,905 million yen in the public sector (+12.4%) and 402 million yen in the consumer sector (+0.2%). The company plans to expand sales of its mainstay i-FILTER and m-FILTER products and increase sales of Z-FILTER and other new and related products in the enterprise market, and to continuously obtain Phase 2 GIGA School Concept projects, Next-Generation School Affairs DX projects and projects for security improvements for local governments in the public market.

Shareholder Returns

The shareholder return policy for the fiscal year ending March 31, 2027 calls for the implementation of progressive dividends and a total return ratio target of 50% or more. The company plans dividends of 100 yen per share, which it expects will represent an increase for the 13th consecutive fiscal year, and says it will purchase treasury shares flexibly in consideration of the trends in its performance and the stock market and other factors.

Item	FY Mar. 2023	FY Mar. 2024	FY Mar. 2025	FY Mar. 2026	FY Mar. 2027
Dividend (in yen) per share	75	80	85	95	100
Amount of treasury shares purchased (Estimate)	500 million yen	930 million yen	740 million yen	1,130 million yen	Flexible purchase of treasury shares

Medium-Term Management Plan and Topics

The fiscal year ending March 31, 2027 is the final fiscal year of the Medium-Term Management Plan covering FY March 2025 to FY March 2027. The company has revised its initial financial targets to net sales of 12 billion yen and operating profit of 5.4 billion yen, with the number of employees planned to rise to 360 from 326 at the end of FY Mar. 2026. It positions the year as one for establishing a foundation for the enterprise sector market and accelerating the implementation of AI in the new era, and sets out three priority areas: growth of the security business, an increase in public sector market share, and strengthening of the sales and development teams supporting high-touch sales. From FY March 2028 onwards, the next stage targets net sales of more than 15 billion yen and operating profit of more than 7.8 billion yen.

During the year the company released Z-FILTER, which includes all of the functions of i-FILTER and adds ZTNA and a cloud firewall so that all communications can be controlled, and a-FILTER, an integrated authentication platform registered with ISMAP. A new plan offering ZTNA alone was added at 1,000 yen per month excluding tax, alongside SWG at 1,500 yen, SWG ID at 1,750 yen and SSE at 2,000 yen per month excluding tax. The company also launched a school education business, an online learning system building on knowledge cultivated in GIGA School Concept projects. It reports 14.97 million users of White Operation, its proprietary security model, with 0 reports of malware infection from users of i-FILTER Ver. 10, m-FILTER Ver. 5, i-FILTER@Cloud and m-FILTER@Cloud as of March 2026.

This article is an analysis based on publicly available information and is not a recommendation to buy or sell any specific securities. Investment decisions are your own responsibility.