Linical Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.86B
• Operating Income: ¥-511M
• Net Income: ¥-928M
• EPS: ¥-41.07

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2026 Q2 was weak with a clear swing to loss, driven by revenue decline and cost overrun, resulting in negative operating and net income. Revenue fell to 48.59 (−10.4% YoY), while gross profit was 10.72 and SG&A was 15.83, pushing operating income to −5.11. Operating margin deteriorated to −10.5%, and net margin was −19.1%, reflecting both weaker topline and insufficient cost flex. Ordinary income of −5.43 and a positive tax expense of 3.85 led to net income of −9.27, implying an unusual −70.8% effective tax rate. Gross margin stood at 22.1%, while SG&A-to-sales rose to 32.6%, indicating deleveraging and under-absorption of fixed costs. YoY margin expansion/compression cannot be quantified due to missing prior-period margins, but the swing to an operating loss implies meaningful compression in operating margin in excess of 1,000 bps. Cash flow was also negative: operating cash flow (OCF) was −10.71 versus net loss of −9.27, so cash burn exceeded the accounting loss. Liquidity is adequate with a current ratio of 150.8% and cash of 54.00, comfortably covering short-term loans of 6.00. Leverage appears acceptable from a funding standpoint with net cash of roughly 39 (cash 54 minus total loans 15), though the reported D/E ratio of 1.38x indicates a relatively liability-heavy structure. Intangibles are high (intangible assets 30.75 including goodwill 29.89), flagging potential impairment risk if profitability does not recover. ROE was −15.3% (via DuPont: net margin −19.1%, asset turnover 0.337x, financial leverage 2.38x), and ROIC printed −23.8%, both well below acceptable thresholds. Non-operating items were small (non-operating income 0.48, including interest income 0.27) and could not offset operating weakness. Interest coverage is deeply negative (−51x), driven by negative EBITDA, despite low absolute interest expense (0.10). Given the negative OCF and revenue contraction, near-term focus must be on utilization recovery, backlog execution, and SG&A realignment. Forward-looking, recovery hinges on stabilizing demand in core CRO services, improving project starts and pass-through, and managing overseas tax/valuation allowance effects that inflated the tax burden this quarter.

Profitability Analysis

ROE decomposition: ROE (−15.3%) = Net Profit Margin (−19.1%) × Asset Turnover (0.337x) × Financial Leverage (2.38x). The dominant driver of weak ROE is the sharp deterioration in net profit margin, as SG&A (15.83) exceeded gross profit (10.72), yielding operating margin of −10.5% and net margin of −19.1%. Asset turnover of 0.337x indicates underutilized asset base for the current revenue scale, likely due to project delays, lower utilization, or backlog conversion issues typical in CRO cycles. Financial leverage at 2.38x is moderate and magnifies the negative margin into a worse ROE, though the company maintains net cash when considering only interest-bearing debt. The business reason for margin compression likely stems from revenue decline (−10.4% YoY) combined with relatively fixed SG&A (personnel/infrastructure for multi-country CRO operations) and possibly lower billable hours or pricing pressure. This looks cyclical rather than one-time, but the tax expense (3.85) despite a loss suggests non-recurring or geographic mix effects that worsened the bottom line this quarter. Sustainability: without a revenue rebound or SG&A rightsizing, current negative margins are not sustainable; management action on capacity and cost is needed for normalization. A concerning trend is SG&A growth versus sales: while YoY SG&A breakdown is not available, SG&A at 32.6% of sales far exceeds gross margin (22.1%), implying adverse operating leverage. Monitoring the gap between gross profit and SG&A will be critical for profitability inflection.

Growth Assessment

Revenue contracted 10.4% YoY to 48.59, indicating softer demand or timing delays in project starts/execution. Profitability deteriorated to operating income of −5.11 and net income of −9.27, with non-operating items too small to offset operational weakness. Current gross margin at 22.1% suggests limited pricing power and/or higher delivery costs, while SG&A intensity (32.6% of sales) reflects deleveraging. ROIC at −23.8% underscores that invested capital is not currently earning its cost, and improvement in utilization and mix is necessary for a turnaround. With OCF at −10.71 and capex minimal (0.05), cash burn stems from operations rather than investment, highlighting the need to stabilize working capital and project cash collections. Outlook-wise, absent disclosed backlog or segment data, a near-term V-shape recovery is uncertain; a gradual recovery driven by better utilization and cost control is more realistic. Non-operating income (0.48) and low interest expense (0.10) offer little buffer, so operating restoration is paramount.

Financial Health

Liquidity: Current ratio 150.8% and quick ratio 150.8% indicate adequate short-term coverage; cash and deposits of 54.00 comfortably cover current liabilities related to loans (short-term loans 6.00). Solvency: Total liabilities 83.73 vs equity 60.47 implies D/E of 1.38x (below the 2.0x warning threshold). Equity ratio (calculated) is approximately 41.9% (60.47 / 144.20), a reasonable buffer. Interest-bearing debt totals 15.00 (short-term 6.00, long-term 9.00) against cash of 54.00, implying net cash of about 39.00, which reduces refinancing risk. Nevertheless, interest coverage is highly negative (−51x) due to negative EBITDA, signaling earnings vulnerability rather than funding strain. Maturity mismatch risk appears limited given current assets (98.43) exceed current liabilities (65.25), and cash alone covers a large portion of near-term needs. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF was −10.71 versus net income of −9.27, producing an OCF/NI ratio of 1.16x; however, with both figures negative, this ratio is not a quality positive—cash burn exceeds the accounting loss. Free cash flow cannot be fully assessed due to missing investing CF details, but capex was minimal at 0.05, implying operating losses, not investments, drive cash outflow. Financing CF was −6.11, likely reflecting debt repayments and/or dividends (not disclosed) with negligible buybacks (−0.00). Working capital details (receivables, payables, inventory) are incomplete; accounts receivable stand at 25.26, but the direction of change is unknown, preventing assessment of collection timing or potential manipulation. No evidence of one-off cash inflows supporting earnings; non-operating income was small (0.48). Overall, cash flow quality is weak this quarter due to negative OCF aligned with operating losses.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported, and the calculated payout ratio of −42.7% is not meaningful with negative earnings. With negative OCF (−10.71) and no visibility on FCF coverage, sustaining any dividend would depend on balance sheet cash (54.00) and continued net cash position (~39.00). Given the earnings and cash burn, a conservative stance on cash returns would be prudent until operating cash flow normalizes. Policy outlook cannot be inferred without guidance; key will be restoring positive OCF and operating margin.

Risk Assessment

Business Risks:

• Project timing and utilization risk in CRO operations leading to deleveraging and margin volatility
• Pricing pressure and mix shift reducing gross margin (current 22.1%)
• Execution risk on backlog conversion and client start-up delays
• Goodwill impairment risk given large goodwill (29.89) relative to equity (60.47)
• Overseas tax/valuation allowance volatility evidenced by positive tax expense despite losses (effective tax −70.8%)

Financial Risks:

• Negative operating cash flow (−10.71) and EBITDA (−4.42) creating earnings coverage stress
• Interest coverage extremely weak (−51x), exposing vulnerability if rates or interest costs rise
• Potential covenant headroom risk if profitability remains negative (details not disclosed)
• Reliance on liability-heavy balance sheet (D/E 1.38x) despite net cash, increasing sensitivity to working capital swings

Key Concerns:

• SG&A (15.83) exceeding gross profit (10.72) indicates structural cost misalignment
• Revenue contraction (−10.4% YoY) without disclosed backlog raises recovery uncertainty
• High intangibles (30.75) and goodwill (29.89) could trigger impairments if forecasts are revised down
• Tax expense of 3.85 in a loss-making quarter depresses net results and may persist depending on jurisdictional mix
• Data gaps (no segment, prior-period margin, or full CF detail) limit precision in diagnosing the turnaround path

Investment Implications

Key Takeaways:

• Clear operational downturn: operating margin −10.5% and net margin −19.1% on lower sales
• Cash burn is operational (OCF −10.71) with minimal capex (0.05)
• Balance sheet liquidity is a mitigant: cash 54.00 vs total loans 15.00 (net cash ~39.00)
• ROE −15.3% and ROIC −23.8% underscore urgent need for cost and utilization recovery
• Tax burden amplified the loss; normalization could aid bottom line if one-off/valuation effects reverse

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue recovery trajectory
• Utilization rate and SG&A-to-sales ratio (target < gross margin)
• OCF trend and receivables collection (DSO) for cash burn improvement
• Impairment testing triggers for goodwill/intangibles
• Effective tax rate normalization and deferred tax asset movements

Relative Positioning: Within the CRO/clinical services peer set, Linical currently underperforms on growth and margins, but maintains stronger liquidity (net cash) than many leveraged peers; turnaround credibility hinges on near-term utilization and cost containment.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
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