FRONTEO (2158) FY2026 Q3 Earnings Report

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Executive Summary

FY2026 Q3 cumulative results show revenue of 54.2B yen (YoY +14.7%), operating income of 3.3B yen (-26.2%), ordinary income of 3.2B yen (-32.2%), and net income of 2.2B yen (-21.7%). While top-line growth continues driven by DX segment expansion (+599.5%) and LifeScienceAI (+141.7%), operating profitability deteriorated significantly due to SG&A expense growth outpacing revenue gains. The company maintains a mixed performance pattern of revenue growth with profit decline, reflecting the impact of expansion investments and M&A integration costs.

Performance Drivers

Revenue increased 6.95B yen YoY to 54.2B yen, primarily driven by the DX segment which surged from 2.7B yen to 18.7B yen following the acquisition of Alnetz, and LifeScienceAI which expanded from 2.1B yen to 5.2B yen on accelerated AI drug discovery initiatives. The RiskManagement segment, while remaining the largest revenue contributor at 30.4B yen (56.0% of total), contracted 28.5% YoY as legal tech AI and compliance support demand softened. Gross profit margin remained robust at 49.8%, down modestly from prior period, indicating stable service delivery economics. However, operating income declined 1.2B yen to 3.3B yen as SG&A expenses expanded to 23.7B yen (43.6% of revenue) from 22.3B yen, reflecting personnel costs for business expansion, M&A integration expenses, and R&D investments in AI platforms. Non-recurring factors included impairment loss of 14M yen on discontinued software in DX segment and goodwill recognition of 1,253M yen from Alnetz acquisition. The gap between operating income (3.3B yen) and ordinary income (3.2B yen) was minimal at 100M yen, with non-operating income of 812M yen (primarily dividend income 433M yen and FX gains 150M yen) offset by non-operating expenses of 873M yen (interest expense 332M yen and commission fees 195M yen). Extraordinary items net impact was negative 9M yen. Net income of 2.2B yen reflects effective tax rate of 29.7%. Comprehensive income surged to 7.1B yen driven by unrealized gains on investment securities of 4.6B yen, significantly exceeding net income. This represents a revenue up/profit down pattern driven by expansion investments and segment mix shift.

Segment Analysis

LifeScienceAI segment posted revenue of 5.2B yen with operating loss of 2.3B yen (margin -45.4%), as AI drug discovery and medical device businesses remain in investment phase. The AI drug discovery subsegment grew to 3.8B yen while AI medical device contracted slightly to 1.3B yen. DX segment achieved revenue of 18.7B yen with operating income of 1.4B yen (margin 7.3%), representing dramatic expansion from prior period on Alnetz consolidation which contributed 16.7B yen in system development services. Operating profit improved to positive territory from prior losses on scale benefits. RiskManagement segment, the core business contributing 56.0% of total revenue, recorded 30.4B yen in sales with operating income of 4.3B yen (margin 14.2%). Within this segment, legal tech AI declined to 16.5B yen from 28.5B yen, while BI compliance support and economic security subsegments remained relatively stable. Operating profit decreased 1.4B yen YoY despite maintaining the highest margin among segments. The segment contribution shifted notably with DX rising from negligible to 34.5% of revenue and RiskManagement declining from 89.9% to 56.0%, indicating successful portfolio diversification but also highlighting dependence on high-margin RiskManagement for overall profitability.

Key Metrics

[Profitability] ROE of 6.0% underperforms industry median of 8.3%, reflecting capital efficiency challenges as net profit margin compressed to 4.1% (industry median 6.0%) and operating margin declined to 6.1% (vs industry median 8.2%). The company's profitability deteriorated across metrics with DuPont analysis showing net margin of 4.1%, asset turnover of 0.607x, and financial leverage of 2.42x combining to generate the 6.0% ROE. Return on invested capital of 4.8% falls significantly below the healthy range of 7-8%, signaling inadequate return on deployed capital. [Cash Quality] Cash and deposits stand at 21.3B yen providing 0.93x coverage of short-term debt (23.0B yen short-term loans plus 4.9B yen current portion of long-term debt), indicating constrained near-term liquidity. Working capital of 1.1B yen represents only 2.6% of current assets. [Investment Efficiency] Asset turnover of 0.607x aligns closely with industry median of 0.67x but reflects capital intensity from intangible asset buildup. Total assets expanded to 89.4B yen from 64.7B yen, with intangible assets reaching 22.6B yen including goodwill of 12.0B yen and software of 6.2B yen. [Financial Health] Equity ratio of 41.4% trails industry median of 59.2%, positioning below the conservative 50% threshold. Current ratio of 102.7% (vs industry median 215%) signals elevated short-term liquidity risk. Debt-to-equity ratio stands at 1.42x with interest-bearing debt totaling 33.5B yen, comprising 23.0B yen short-term borrowings and 10.5B yen long-term debt. Debt-to-capital ratio of 47.5% exceeds the conservative 40% benchmark. Interest coverage ratio of 10.0x provides adequate buffer for debt service obligations. The short-term debt ratio of 68.8% creates refinancing risk concentration.

Cash Flow Analysis

Cash and deposits increased 4.7B yen from prior fiscal year-end to 21.3B yen despite operating profit growth, as working capital movements and investment activities absorbed liquidity. The increase in trade payables to 1.2B yen from 0.2B yen suggests improved supplier credit utilization contributing 1.0B yen in working capital financing. Investment securities expanded significantly by 8.5B yen to 18.2B yen, indicating substantial deployment into financial assets. Intangible assets grew 14.3B yen including goodwill recognition of 1.3B yen from Alnetz acquisition and software capitalization of 3.8B yen, reflecting ongoing R&D and platform development investments. On the financing side, short-term borrowings surged 13.0B yen to 23.0B yen while long-term debt increased 7.6B yen to 10.5B yen, providing 20.6B yen net financing inflow to fund expansion activities. Retained earnings improved modestly by 2.3B yen to 1.2B yen, moving from accumulated deficit to positive territory. The cash coverage of short-term liabilities at 0.93x indicates limited buffer, warranting close monitoring of refinancing arrangements. The substantial increase in investment securities concurrent with borrowing expansion suggests strategic asset allocation rather than pure operational cash accumulation.

Earnings Quality

Ordinary income of 3.2B yen compared to operating income of 3.3B yen shows net non-operating contribution of negative 100M yen. Non-operating income totaled 812M yen, comprising dividend income of 433M yen (53% of non-operating income), FX gains of 150M yen, and subsidy income of 191M yen as primary components. Non-operating expenses of 873M yen consisted mainly of interest expense 332M yen and commission fees 195M yen. The non-operating net represents 1.8% of revenue, a modest proportion suggesting core operating performance drives results. Extraordinary items totaled net negative 9M yen from impairment loss of 14M yen and asset disposal losses offset partially by gain on reversal of subscription rights. Operating cash flow data is not disclosed in quarterly filings, limiting assessment of accruals quality. However, comprehensive income of 7.1B yen significantly exceeded net income of 2.2B yen, driven by unrealized gains on securities of 4.6B yen, indicating substantial mark-to-market valuation gains in investment portfolio that do not reflect cash earnings. The divergence between comprehensive income and net income warrants attention to earnings quality as approximately 69% of comprehensive income derives from non-cash valuation adjustments.

Guidance Update

The company maintains full-year guidance of revenue 77.0B yen (YoY +26.2%), operating income 7.0B yen (+32.7%), and ordinary income 7.2B yen (+31.5%). Q3 cumulative progress rates stand at 70.4% for revenue, 47.4% for operating income, and 45.1% for ordinary income against full-year targets. Revenue progress tracking slightly above the standard 75% marker for Q3 reflects seasonality and growth momentum. However, operating income progress of 47.4% falls significantly below the 75% standard, requiring 3.7B yen operating profit generation in Q4 alone to achieve guidance, representing a 4.3x acceleration from Q3 run rate. This implies substantial Q4 profit improvement assumptions through revenue acceleration in high-margin RiskManagement recovery, cost absorption benefits from DX scale-up, and LifeScienceAI narrowing losses. The significant backend loading of profit expectations presents execution risk. The company disclosed Alnetz acquisition generated goodwill of 1,253M yen with purchase price allocation still provisional, creating uncertainty in final goodwill recognition. No forecast revisions were made this quarter, suggesting management confidence in Q4 performance trajectory despite current shortfalls.

Shareholder Returns

Annual dividend remains zero yen for both interim and year-end, continuing the no-dividend policy. With net income of 2.2B yen and zero dividend payout, the payout ratio is 0%, indicating full retention of earnings for growth investments. No share buyback activities were disclosed during the period. The company prioritizes internal capital deployment toward business expansion, M&A integration, and R&D investments over shareholder distributions. The total return ratio including both dividends and buybacks stands at 0%. Retained earnings turned positive at 1.2B yen from accumulated deficit of 1.0B yen in prior year, suggesting gradual capital base rebuilding. Given the growth investment phase, expansion of intangible assets to 22.6B yen, and acquisition activities generating 12.0B yen goodwill, the zero-dividend policy appears consistent with capital allocation priorities favoring reinvestment over distribution.

Risk Factors

Business concentration risk remains elevated with RiskManagement segment contributing 56.0% of revenue and 129.5% of total operating profit (offsetting losses in LifeScienceAI). Demand weakness in legal tech AI subsegment which contracted 42.0% YoY demonstrates vulnerability to specific vertical market conditions. Any further deterioration in core RiskManagement performance would directly impact consolidated profitability. Intangible asset and goodwill impairment risk intensified with goodwill reaching 12.0B yen (32.4% of equity) and total intangible assets of 22.6B yen following Alnetz acquisition. The DX segment already recorded 14M yen impairment on discontinued software this period. If revenue synergies or cost integration benefits from acquisitions underperform expectations, significant impairment charges could materialize. The company disclosed goodwill allocation remains provisional, creating additional uncertainty. Refinancing and liquidity risk stems from short-term debt concentration at 68.8% of total borrowings, with 23.0B yen short-term loans requiring rollover within 12 months while cash coverage stands at only 0.93x. Interest rate increases or credit tightening could elevate refinancing costs or constrain access to credit facilities, pressuring already compressed margins. The debt-to-capital ratio of 47.5% limits additional leverage capacity for growth funding.

Industry Benchmark (Reference - Proprietary Data)

[Industry Position] (Reference - Proprietary Analysis)

FRONTEO's financial positioning reveals several areas of underperformance relative to IT and telecommunications sector peers. Profitability metrics lag industry standards with ROE of 6.0% below the median of 8.3%, operating margin of 6.1% trailing the 8.2% median, and net profit margin of 4.1% versus 6.0% median. The company's return on assets of 2.5% (calculated from net income 2.2B/total assets 89.4B) falls below the sector median of 3.9%. Financial health indicators show concerning divergence with equity ratio of 41.4% substantially below the industry median of 59.2%, and current ratio of 102.7% dramatically lower than the 215% median, signaling elevated financial risk. Revenue growth of 14.7% exceeds the industry median of 10.4%, demonstrating superior top-line expansion driven by M&A and organic growth in DX and LifeScienceAI segments. However, this growth has not translated to competitive profitability, reflecting investment phase characteristics. Asset turnover of 0.607x approximates the 0.67x median, showing comparable capital efficiency in revenue generation. The company's financial leverage of 2.42x exceeds the median of 1.66x, consistent with the lower equity ratio and higher debt utilization strategy. EPS growth of negative 21.6% YoY significantly underperforms the industry median of 22.0% positive growth, highlighting earnings pressure from expansion investments.

※ Industry: IT and Telecommunications (104 companies), Comparison: 2025-Q3 Period, Source: Proprietary analysis

Key Takeaways from Earnings

Portfolio transformation underway with DX segment emerging as significant growth driver, expanding from negligible contribution to 34.5% of revenue through Alnetz acquisition while maintaining positive 7.3% operating margin. This diversification reduces historical over-dependence on RiskManagement segment, though execution risk remains in achieving projected synergies and the company recorded immediate 14M yen impairment on acquired software assets. Profitability compression requires close monitoring as operating margin declined to 6.1% from 9.5% YoY despite revenue growth, driven by SG&A expense expansion to 43.6% of revenue. Management's ability to leverage scale benefits and rationalize costs in coming quarters will determine whether margin pressure is transitional investment-phase phenomenon or structural deterioration. The substantial gap between comprehensive income (7.1B yen) and net income (2.2B yen) creates earnings quality considerations, with 4.6B yen or 69% of comprehensive income derived from unrealized securities gains rather than operating cash generation. Short-term liquidity positioning warrants priority attention with cash-to-short-term-debt coverage of only 0.93x and current ratio of 102.7% far below industry norms, creating refinancing dependency. The 13.0B yen increase in short-term borrowings and elevated 68.8% short-term debt ratio amplify sensitivity to credit market conditions and interest rate movements.

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This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.

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AI Financial Analysis

Executive Summary

FRONTEO delivered solid top-line growth in FY2026 Q3 but weaker profitability, with the earnings profile materially diluted by mix changes and acquisition-related expansion. Revenue increased 14.7% year on year to ¥5.42bn. Operating income declined 26.2% to ¥332m, while ordinary income fell 32.2% to ¥325m. Net income decreased 21.7% to ¥222m, equivalent to basic EPS of ¥5.67. The operating margin compressed by 337bp year on year to 6.1% from 9.5%. Gross margin declined by approximately 700bp to 49.8% from 56.7%, representing the principal driver of the operating-profit decline. SG&A rose only 5.9%, below revenue growth, and the SG&A-to-sales ratio improved by approximately 360bp to 43.6%. This indicates that the margin pressure primarily reflects a lower gross-margin revenue mix rather than uncontrolled overhead growth. The Risk Management business remained the main earnings contributor, generating ¥430m of segment profit, or more than total consolidated operating income because Life Science AI remained loss-making. The newly enlarged DX business generated ¥1.87bn of revenue and ¥136m of segment profit, supported by the Arnets acquisition, although its segment margin was below the prior-year comparator. Life Science AI revenue expanded sharply to ¥515m, driven by AI drug discovery, but its segment loss widened to ¥234m. Net income quality was also affected by a net extraordinary loss of ¥9m, including a ¥14m impairment on software whose sale was discontinued. Balance-sheet expansion was substantial, with total assets rising to ¥8.94bn and interest-bearing debt increasing to ¥3.35bn following the acquisition-led buildout. FY2026 full-year guidance remains unchanged, but Q3 cumulative progress is behind the standard seasonal benchmark for both operating income and net income. The investment debate therefore centers on whether acquired DX revenue can sustain profitable integration, whether Life Science AI can narrow its losses, and whether the company can refinance its short-dated debt without weakening financial flexibility.

Profitability Analysis

The reported annualized ROE is 8.0%, decomposed into a 4.1% net profit margin, 0.809x annualized asset turnover, and 2.42x financial leverage. The relatively high financial leverage is the largest supportive component of ROE, while the 4.1% net margin remains modest and is below the 5% threshold generally associated with a stronger earnings profile. Operating margin fell to 6.1% from 9.5%, despite revenue growth of 14.7%, demonstrating negative operating leverage at the gross-profit level. Gross profit increased only 0.6% to ¥2.70bn as cost of sales rose 33.3% to ¥2.73bn, substantially faster than revenue. SG&A growth of 5.9% was contained relative to revenue, and the SG&A ratio declined to 43.6% from 47.2%, partially mitigating gross-margin dilution. The Risk Management segment is the core business by operating-income contribution, producing ¥430m of profit on ¥3.04bn of revenue; its segment margin improved to 14.2% from 13.5% despite revenue declining 28.5%. DX revenue increased 599.5% to ¥1.87bn and segment profit grew 90.8% to ¥136m, but segment margin declined to 7.3% from 26.6%, consistent with the integration of Arnets and a lower-margin revenue mix. Life Science AI revenue increased 141.7% to ¥515m, but its segment loss widened 20.5% to ¥234m, making it a continuing drag on consolidated profitability. The tax burden of 0.701 is normal, while the interest burden of 0.954 indicates that interest expense currently has a limited effect on pre-tax earnings. Interest coverage of 10.01x is adequate, but this metric should be monitored as debt has increased materially. JGAAP goodwill amortization can depress operating income and net income relative to IFRS-reporting peers, making operating-margin and cash-generation trends particularly important when evaluating acquisition-adjusted earnings power.

Growth Assessment

Revenue growth was broad-based but uneven in quality. Life Science AI grew to ¥515m from ¥213m, with AI drug-discovery revenue increasing to ¥381m from ¥60m, while AI medical-device revenue declined 12.4% to ¥134m. Risk Management revenue declined 28.5% to ¥3.04bn: LegalTech AI fell 42.0% to ¥1.65bn and Business Intelligence/Compliance support declined 8.7% to ¥987m, partly offset by Economic Security growth of 24.6% to ¥400m. DX became a major growth engine, with revenue reaching ¥1.87bn from ¥268m, including ¥1.67bn from Arnets-related DX internalization support and systems development. The growth mix is therefore shifting from the established, higher-margin Risk Management franchise toward acquired DX revenue and investment-stage Life Science AI revenue. Full-year guidance calls for revenue of ¥7.70bn, operating income of ¥700m, ordinary income of ¥715m, and net income attributable to owners of ¥615m. Q3 revenue progress is 70.5% of full-year guidance, modestly below the standard 75% Q3 benchmark. Operating-income progress is 47.4%, 27.6 percentage points below the standard benchmark, while net-income progress is 36.1%, 38.9 percentage points below it. Achieving guidance requires Q4 revenue of ¥2.28bn, operating income of ¥368m, and net income attributable to owners of ¥393m. The implied Q4 operating margin is 16.2%, well above the 6.1% Q3 cumulative margin, requiring a sharp improvement in business mix, gross margin, or project profitability. The unchanged forecast implies management expects a pronounced final-quarter earnings recovery, but the required step-up raises execution sensitivity.

Financial Health

Liquidity is narrowly positive, with a current ratio of 1.03x, a quick ratio of 1.03x, and working capital of ¥109m. Current assets of ¥4.15bn exceed current liabilities of ¥4.04bn, but the modest liquidity buffer leaves limited capacity to absorb collection delays, cost overruns, or refinancing disruption. Interest-bearing debt rose ¥2.02bn year on year to ¥3.35bn, comprising ¥2.30bn of short-term loans and ¥1.05bn of long-term loans. Long-term loans increased ¥756m, while short-term loans increased ¥1.30bn. The debt-to-equity ratio is 1.42x and debt-to-capital is 47.5%, indicating meaningful but not extreme leverage. Cash and deposits of ¥2.13bn cover 0.93x of short-term loans, below full coverage. The refinancing-risk quality alert is material: 68.8% of interest-bearing debt is short-term, versus the 40% alert threshold. The root cause is an acquisition-expanded funding structure relying heavily on short-term borrowings, including current maturities of longer-term loans. This is a meaningful concern for a technology-services business whose earnings have weakened and whose working-capital headroom is thin. The impact is that refinancing terms, interest costs, and lender appetite could directly affect financial flexibility and the ability to invest in growth initiatives. Interest coverage remains 10.01x, providing current servicing capacity, but it is based on operating income that declined 26.2% year on year. Equity increased to ¥3.70bn from ¥3.23bn, supported largely by accumulated other comprehensive income, including a ¥457m positive valuation difference on securities. Goodwill represents 32.4% of equity and 13.4% of total assets, an elevated but not warning-level reliance on acquired value. Intangible assets account for 25.2% of assets, placing the company in an IP-heavy capital structure. The ¥1.25bn provisional goodwill recognized on the Arnets acquisition increases the importance of successful post-merger integration and future impairment testing.

Notable B/S Changes

Intangible assets: +¥1.43bn (+173.8%) to ¥2.26bn - acquisition-related asset expansion and internally developed software exposure have increased the importance of integration and impairment discipline. Goodwill: ¥1.20bn, including ¥1.25bn of provisional goodwill from the Arnets acquisition - acquired-value retention is material at 32.4% of equity. Short-term loans: +¥1.30bn (+130.0%) to ¥2.30bn - principal driver of the elevated 68.8% short-term debt ratio and refinancing risk. Long-term loans: +¥756m (+262.1%) to ¥1.05bn - leverage increased to fund balance-sheet expansion and acquisition activity. Investment securities: +¥849m (+87.8%) to ¥1.82bn - now 20.3% of total assets; valuation movements have a meaningful effect on equity and comprehensive income. Accounts payable: +¥100m (+454.7%) to ¥122m - reflects a larger operating base, though the absolute amount remains modest. Property, plant and equipment: +¥114m (+37.9%) to ¥413m - indicates a moderate increase in fixed-asset investment. Treasury stock: increased to -¥200m from a negligible balance - reduces reported equity and should be assessed alongside capital-allocation priorities. Retained earnings: improved by ¥225m to ¥121m from a deficit of ¥104m - reflects current-period profitability, although accumulated earnings remain limited relative to the enlarged balance sheet.

Cash Flow Quality

Operating cash-flow, investing cash-flow, financing cash-flow, free-cash-flow, and cash-conversion metrics are not presented in the supplied financial statements.

Dividend Sustainability

The company disclosed a ¥0 Q2 dividend per share and forecasts a ¥0 full-year dividend per share. Accordingly, there is no dividend payout burden on current earnings or balance-sheet liquidity. Retaining earnings is consistent with the need to support acquisition integration, debt management, and investment in Life Science AI. Future shareholder-return capacity will depend principally on sustained operating-margin recovery and a reduction in refinancing dependence.

Risk Assessment

Business risks include Life Science AI remains loss-making, with the segment loss widening to ¥234m despite 141.7% revenue growth; further commercialization investment could delay group margin recovery., Risk Management revenue declined 28.5%, including a 42.0% decline in LegalTech AI revenue, creating risk that the core earnings engine does not recover at the pace embedded in full-year guidance., The Arnets acquisition has rapidly increased DX revenue, but DX segment margin compressed to 7.3% from 26.6%; integration, project execution, customer-retention, and realization-of-synergy risks are therefore material., AI, LegalTech, compliance, and manufacturing-DX markets are competitive and subject to technology obsolescence, customer budget cycles, data-security requirements, and demand volatility for discretionary transformation projects., The required Q4 operating-income recovery to ¥368m implies a 16.2% operating margin, increasing the risk of a shortfall if project timing or gross-margin improvement is delayed..

Financial risks include Refinancing risk is elevated because 68.8% of interest-bearing debt is short-term, with short-term loans of ¥2.30bn against cash of ¥2.13bn., The current ratio of 1.03x and working capital of ¥109m indicate only a narrow short-term liquidity cushion., Interest-bearing debt increased ¥2.02bn year on year to ¥3.35bn, raising sensitivity to interest costs and covenant discipline if operating profit remains under pressure., Goodwill of ¥1.20bn, including ¥1.25bn of provisional Arnets acquisition goodwill recognized during the period, exposes equity to potential impairment if acquired business performance misses expectations., Investment securities of ¥1.82bn represent 20.3% of assets, and valuation gains contributed materially to equity growth; market-value movements can affect comprehensive income and capital resilience..

Key concerns include Revenue growth has not translated into operating-profit growth because gross margin declined by approximately 700bp., The core Risk Management business remains profitable but contracted in revenue, while lower-margin DX and loss-making Life Science AI account for a larger share of group activity., A ¥14m impairment on internally developed DX software confirms that product-development and commercialization decisions carry execution risk., The balance sheet has become more leveraged and asset-intangible-heavy following the acquisition-led expansion..

Investment Implications

Key takeaways include Revenue grew 14.7%, but operating income declined 26.2% as gross-margin dilution outweighed improved SG&A efficiency., Risk Management is the core profit generator, contributing ¥430m of segment profit, but its 28.5% revenue decline is a central issue., DX expansion through Arnets has transformed revenue scale, but lower segment margins and ¥1.25bn of provisional acquisition goodwill require evidence of successful integration., The annualized 8.0% ROE is supported materially by 2.42x leverage rather than a high net margin., Unchanged full-year guidance requires a substantial Q4 recovery, especially in operating and net income., Short-term debt concentration is the principal financial-risk factor despite currently adequate interest coverage..

Metrics to watch include Risk Management revenue recovery, particularly LegalTech AI demand, DX segment margin and Arnets integration milestones, Life Science AI segment-loss trajectory and AI drug-discovery commercialization, Consolidated gross margin and operating margin, Q4 operating-income delivery versus the ¥368m implied requirement, Short-term loan refinancing, cash-to-short-term-debt coverage, and current-ratio movement, Goodwill and software impairment indicators.

Regarding relative positioning, FRONTEO combines AI-led growth areas with a profitable Risk Management franchise, but its current earnings profile is weaker than that of mature high-margin IT-services peers because of declining core-segment revenue, investment-stage Life Science AI losses, acquisition-driven DX margin dilution, and a more short-term-debt-dependent balance sheet.