Softfront Holdings FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥409M
• Operating Income: ¥-30M
• Net Income: ¥-24M
• EPS: ¥-0.51

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

Softfront Holdings (23210) posted FY2026 Q2 consolidated results under JGAAP with modest top-line growth but persistent operating losses. Revenue rose 4.1% year over year to ¥409 million, while operating income remained a loss of ¥30 million, unchanged YoY, indicating limited operating leverage in the period. Gross profit is reported at ¥178 million, implying a gross margin of 43.6%, which is healthy for a software/solutions model and suggests gross-level pricing and cost control remain intact. The ordinary loss narrowed slightly to ¥26 million, and net loss was ¥26 million, implying limited non-operating drag (interest expense only ¥0.054 million). The DuPont bridge shows a net margin of -6.36%, asset turnover of 0.182x, and financial leverage of 1.16x, resulting in a calculated and reported ROE of -1.34%, i.e., small negative returns on equity due to modest losses against a relatively large equity base. Liquidity appears ample with a current ratio of 651% and working capital of approximately ¥1.38 billion, suggesting near-term funding flexibility for operations and investment. Balance sheet leverage is low (debt-to-equity ~0.22x based on total liabilities to equity), and interest burden is negligible, reducing insolvency risk from financial leverage. Operating cash flow was negative ¥8.1 million, materially better than the net loss (OCF/NI ~0.31), indicating some non-cash charges and/or working capital dynamics cushioning cash consumption. Free cash flow is shown as 0 given unreported investing cash flows; however, investing CF was reported as 0 in the period, implying FCF was likely slightly negative and close to OCF. Dividend remains suspended (DPS ¥0), appropriate given the continuing losses and the need to preserve liquidity. While the reported equity ratio is 0.0%, the disclosed totals imply a high equity buffer (equity of ¥1.94 billion vs assets of ¥2.24 billion), indicating strong solvency; the 0.0% likely reflects an undisclosed/placeholder field. There is a minor internal inconsistency between reported gross profit and cost of sales, but the provided gross margin and gross profit are internally consistent and used in this analysis. Overall, the company exhibits solid gross margin strength and abundant liquidity but has yet to translate modest revenue growth into operating profitability. The key to improving ROE will be cost discipline at the SG&A level and enhanced revenue scale to absorb fixed costs. The outlook hinges on sustaining mid-single-digit or better revenue growth while tightening operating expenses to cross the breakeven threshold sustainably.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -6.36% × Asset turnover 0.182 × Financial leverage 1.16 = ROE -1.34%. The negative ROE is primarily driven by the negative net margin; leverage is modest and asset productivity is relatively low, so operational profitability is the main swing factor. Gross margin is reported at 43.6%, consistent with gross profit of ¥178 million on revenue of ¥409 million, indicating strong unit economics at the gross level. Operating margin is -7.3% (operating loss ¥30 million / revenue ¥409 million), showing that SG&A still exceeds gross profit capacity to cover fixed and semi-fixed costs. EBITDA margin is -3.7% (EBITDA -¥15.3 million), suggesting depreciation/amortization (¥14.7 million) is a meaningful cost component but not the primary driver of losses. Operating leverage appears limited this quarter: despite 4.1% YoY revenue growth, operating loss was flat YoY, implying either mix headwinds, higher SG&A, or timing of cost recognition offsetting top-line gains. Ordinary loss (-¥26 million) improved versus operating loss due to negligible interest expense (¥0.054 million), confirming minimal financial drag. Effective tax rate is shown as 0.0%, consistent with loss-making status and/or valuation allowance dynamics under JGAAP.

Growth Assessment

Revenue grew 4.1% YoY to ¥409 million, representing modest growth momentum. Given the high gross margin, incremental revenue should carry favorable contribution margins, yet fixed-cost absorption remains insufficient to turn operating profit positive. The flat operating loss implies growth quality is not yet translating into operating scale; cost discipline and/or pricing/mix optimization are needed. Profit quality shows some support from non-cash items (D&A ¥14.7 million) and working capital effects, as OCF (-¥8.1 million) outperformed net income (-¥26 million). The sustainability of revenue growth will depend on retention of existing customers, conversion of pipeline, and stability in average revenue per account; these details are not disclosed in the data provided. Near-term outlook: breakeven is plausible if revenue growth accelerates beyond mid-single digits and SG&A growth is curbed; otherwise, continuing small operating losses are likely. With low financial leverage, the growth path is not constrained by debt covenants, but execution on sales efficiency and product roadmap will be key to improving operating leverage.

Financial Health

Liquidity is strong: current assets ¥1,626 million vs current liabilities ¥250 million, yielding a current ratio of ~6.5x and working capital of ~¥1,376 million. Quick ratio equals current ratio given no inventories reported (inventories are undisclosed or zero), reinforcing a liquid current asset base. Solvency is robust: total liabilities ¥418 million vs total equity ¥1,938 million (debt-to-equity ~0.22x), and implied equity ratio is high (~86.4%), despite the reported equity ratio field showing 0.0% (likely undisclosed). Interest expense is minimal at ¥0.054 million, and interest coverage by EBIT is negative due to operating loss, but the absolute interest burden is not a solvency concern. Asset base of ¥2,242 million supports operations with low leverage risk; however, asset turnover at 0.182x is modest, indicating potential capital inefficiency or an early-stage scaling profile.

Cash Flow Quality

Earnings quality is mixed: operating cash flow of -¥8.1 million compares favorably with net income of -¥26 million (OCF/NI ~0.31), suggesting non-cash charges (notably D&A) and/or working capital tailwinds. Free cash flow is shown as 0; investing CF is reported as 0 this period, implying FCF approximates OCF and was likely slightly negative. Depreciation and amortization of ¥14.7 million align with the EBITDA-EBIT bridge and underpin some cash conversion from reported losses. Working capital: with large positive working capital and strong current ratio, the company has headroom to manage receivables and payables without near-term financing. However, negative OCF indicates the core business is not yet self-funding; sustained improvements in gross profit and SG&A control are needed to turn OCF positive. Cash and equivalents are shown as 0 (undisclosed), so period-end liquidity in cash terms cannot be directly assessed from the dataset.

Dividend Sustainability

The company paid no dividend (DPS ¥0), with a payout ratio of 0% and FCF coverage reported as 0.00x. Given negative net income and likely slightly negative FCF, maintaining a zero dividend aligns with capital preservation. A resumption of dividends would require consistent positive earnings and free cash flow, which are not yet evident. Policy outlook: with low leverage and ample working capital, the balance sheet could support future returns of capital once profitability stabilizes; near-term, retention of earnings to fund growth and reach breakeven is the prudent path.

Risk Assessment

Business Risks:

• Execution risk in scaling revenue to cover fixed SG&A, as operating loss remained flat despite 4.1% YoY growth
• Potential pricing/mix pressure that could erode gross margin if competitive intensity increases
• Dependence on timely customer wins and renewals; limited visibility into backlog or ARR metrics
• Operational leverage risk if cost base is inflexible in the short term

Financial Risks:

• Negative operating cash flow indicates the core business is not yet self-funding
• Interest coverage is negative due to operating losses, though absolute interest burden is minimal
• Asset turnover is low (0.182x), implying potential capital efficiency challenges
• Cash and equivalents not disclosed, reducing visibility on immediate liquidity buffers

Key Concerns:

• Persistent operating losses despite revenue growth
• Unreported or placeholder fields (e.g., equity ratio, cash balance, shares) limit precision in per-share and solvency metrics
• Minor inconsistency between reported gross profit and cost of sales; reliance on provided gross margin for analysis

Investment Implications

Key Takeaways:

• Top-line grew 4.1% YoY to ¥409 million, but operating loss remained ¥30 million, indicating limited operating leverage
• Gross margin is solid at 43.6%, supporting potential for profit inflection if SG&A is contained
• Balance sheet is strong with low leverage (debt-to-equity 0.22x) and high working capital (¥1.38 billion)
• OCF (-¥8.1 million) outperformed net loss (-¥26 million), signaling some cushioning from non-cash items and working capital
• Dividend remains suspended appropriately given negative earnings and likely negative FCF

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• Quarterly OCF and FCF to confirm path to self-funding operations
• Revenue growth rate acceleration and any disclosed backlog/ARR indicators
• Gross margin stability amid competitive dynamics
• Asset turnover improvements as scale builds

Relative Positioning: Relative to small-cap Japanese software/IT service peers, Softfront shows healthier gross margins and lower financial leverage but lags on operating profitability and cash flow consistency; its strong balance sheet affords time to execute on cost discipline and growth, but near-term returns remain constrained by subscale operations.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis