Sockets Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥530M
• Operating Income: ¥16M
• Net Income: ¥20M
• EPS: ¥8.39

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

For FY2026 Q2 (single-entity, JGAAP), Sokets reported revenue of ¥530.0m (+9.8% YoY), but operating income was flat at ¥16.0m, indicating limited operating leverage despite top-line growth. Gross profit is presented at ¥209.7m, corresponding to a 39.6% gross margin per the calculated metrics, which is healthy for an information services/data business; however, gross profit is not arithmetically consistent with the stated cost of sales, so we rely on the disclosed gross profit and margin metrics for analysis. Operating margin stands at approximately 3.0%, with EBITDA of ¥17.4m and an EBITDA margin of 3.3%, underscoring thin profitability after operating costs. Ordinary income of ¥17.0m slightly exceeds operating income, suggesting modest non-operating gains or income. Net income was ¥20.0m (EPS ¥8.39), yielding a net margin of 3.77%, and reported ROE is 3.56% based on DuPont decomposition (margin 3.77%, asset turnover 0.638x, leverage 1.48x). The DuPont profile shows ROE constrained primarily by slim margins and moderate asset turnover; leverage is low-to-moderate and not a driver of ROE. Liquidity appears very strong, with a current ratio of 488% and quick ratio of 488%, consistent with a low-inventory model. The balance sheet is conservatively financed: total liabilities are ¥262.5m versus total equity of ¥562.0m; the implied equity ratio is roughly 67.6% (equity/asset), notwithstanding the reported 0.0% (undisclosed) metric. Despite reported profitability, operating cash flow was negative at -¥57.4m, producing an OCF/net income ratio of -2.87, which points to a significant working capital outflow (likely receivables build or timing effects) or other cash items. Investing cash flow is shown as ¥0 and cash/equivalents as ¥0, which we treat as undisclosed rather than actual zeros; thus, free cash flow cannot be reliably derived from the provided data. Financing cash outflow of -¥7.3m likely reflects lease liabilities repayment or minor shareholder returns, as dividends are reported at ¥0 DPS and payout ratio 0%. With no interim dividend and negative OCF, the near-term focus should be on converting revenue growth into cash. Tax expense is de minimis (¥0.3m) and the effective tax rate appears near zero, potentially reflecting loss carryforwards or tax credits; net income exceeding ordinary income hints at extraordinary or non-operating positive items under JGAAP. Overall, Sokets demonstrates resilient revenue growth and a strong balance sheet, but weak operating leverage and negative operating cash flow temper the quality of earnings. The outlook hinges on improving cash conversion, stabilizing operating margins, and maintaining cost discipline. Data limitations (multiple undisclosed items and one internal inconsistency) require caution; our analysis references the provided non-zero metrics and calculated ratios as the primary anchors.

Profitability Analysis

ROE (3.56%) is explained by net margin 3.77%, asset turnover 0.638x, and financial leverage 1.48x. The principal constraint is the low operating margin: operating income of ¥16.0m on ¥530.0m sales implies roughly a 3.0% operating margin, which leaves little room for shocks. Gross margin of 39.6% indicates that value-add at the gross level is solid, but SG&A intensity is high, compressing operating margin. EBITDA margin of 3.3% vs. operating margin ~3.0% suggests low D&A (¥1.39m), so margin expansion must come from SG&A efficiency rather than depreciation relief. Ordinary income (¥17.0m) slightly above operating income suggests small non-operating contributions, but not enough to change the margin profile. Net margin (3.77%) exceeds operating margin, likely due to low taxes and below-the-line items; the sustainability of this gap is uncertain. Operating leverage appears weak in this period: revenue grew 9.8% YoY while operating income was flat, implying cost growth matched revenue gains. Interest expense is disclosed as ¥0, consistent with negligible financial costs; interest coverage is not meaningful. In short, profitability is thin and sensitive to SG&A control, with ROE largely capped by margins rather than balance sheet efficiency or leverage.

Growth Assessment

Revenue growth of +9.8% YoY indicates healthy demand momentum for the company’s services. However, flat operating income suggests incremental revenue was absorbed by higher operating costs (personnel, subcontracting, or data/content acquisition), limiting operating leverage. Net income was also flat, implying that below-the-line benefits (low taxes, small non-operating gains) offset operating weakness without delivering true earnings growth. The gross margin of 39.6% supports the view that the core offering retains pricing power or mix quality, but the drop-through to operating profit is constrained by SG&A. Profit quality is mixed: positive accounting earnings but negative operating cash flow (OCF/NI -2.87) signal timing or collectability issues that should be monitored. Near-term outlook hinges on improving cash conversion of receivables, tighter SG&A discipline, and continued top-line growth from subscriptions/data solutions. Without evidence of capacity constraints or capex drag (investing CF undisclosed), growth appears more tied to commercial execution than asset investment. Overall, growth is revenue-led but not yet profit- or cash-led.

Financial Health

Total assets are ¥831.0m, equity ¥562.0m, liabilities ¥262.5m. The implied equity ratio is about 67.6% (equity/assets), despite the reported equity ratio item being undisclosed. Current ratio and quick ratio are both 488%, reflecting a high share of liquid current assets and negligible inventories. Working capital is ¥554.1m, offering a substantial buffer for operations. Debt-to-equity is shown as 0.47x, broadly consistent with low overall leverage (likely using total liabilities/equity given lack of interest expense). Absence of reported interest expense suggests limited interest-bearing debt and low financial risk from financing costs. Ordinary income exceeding operating income and minimal tax burden indicate some non-operating items, but these do not materially alter the conservative capital structure. Overall solvency is strong; liquidity is ample, albeit currently tied up in working capital that is not generating cash.

Cash Flow Quality

Operating cash flow was -¥57.4m against net income of ¥20.0m, yielding OCF/NI of -2.87, which is weak and points to earnings not converting into cash in the period. The most plausible drivers are an increase in receivables or other working capital outflows; inventories are not a factor and are undisclosed. Depreciation and amortization are modest at ¥1.39m, consistent with asset-light operations; therefore, non-cash add-backs do little to offset working capital swings. Investing cash flow is undisclosed (reported as ¥0), preventing a reliable free cash flow calculation; the provided “FCF: 0” should be treated as not determinable rather than truly zero. Financing cash flow of -¥7.3m suggests minor outflows (e.g., lease or other small financing payments), as dividends are reported at ¥0 DPS. Given the negative OCF, earnings quality for this half appears weak; sustained revenue growth must be accompanied by improved collections and tighter billing terms to restore positive cash generation. Monitoring trends in accounts receivable days and accrued revenue will be critical.

Dividend Sustainability

Annual DPS is reported at ¥0 and payout ratio at 0%, indicating no distributions for the period. With OCF negative and investing CF undisclosed, free cash flow coverage of dividends cannot be assessed; the reported FCF coverage of 0.00x should be treated as not meaningful. Balance sheet strength (implied equity ratio ~67.6%) suggests capacity for future shareholder returns once cash generation normalizes. However, given thin operating margins and weak OCF in this period, sustaining or initiating dividends would prudently await improved cash conversion and clearer profit momentum. Policy outlook: likely conservative, prioritizing liquidity and working capital normalization before distributions.

Risk Assessment

Business Risks:

• Revenue concentration risk in key customers or verticals typical of niche data/IT services providers
• Pricing pressure and contract renewals that can compress gross-to-operating margin conversion
• Human capital constraints and wage inflation impacting SG&A
• Data/content acquisition and licensing cost variability affecting gross margin
• Execution risk in scaling subscriptions or platform services to translate top-line growth into profit
• Regulatory and data privacy/compliance risks tied to handling of content metadata and user data
• Technology obsolescence and need for continuous investment in platforms and data pipelines

Financial Risks:

• Negative operating cash flow despite reported profits, implying working capital and collection risk
• Thin operating margin (~3.0%) leaves limited buffer against revenue volatility
• Dependence on non-operating or extraordinary items for net income uplift under JGAAP
• Small scale increases earnings volatility and limits fixed cost absorption
• Potential timing mismatches between revenue recognition and cash receipts

Key Concerns:

• Sustained negative OCF relative to net income (OCF/NI -2.87) if not transient
• Lack of operating leverage despite 9.8% revenue growth
• Data limitations (undisclosed items and one inconsistency across COGS vs. gross profit) reduce visibility

Investment Implications

Key Takeaways:

• Top-line growth is solid (+9.8% YoY), but operating income is flat, indicating weak operating leverage
• Margins are thin at the operating level (~3.0%) despite a healthy gross margin (39.6%)
• ROE of 3.56% is constrained by low margins rather than leverage or asset turnover
• Liquidity and solvency are strong (implied equity ratio ~67.6%, current ratio 488%)
• Cash conversion is the key issue: OCF was -¥57.4m despite ¥20.0m net income
• Non-operating/tax items aided net income; sustainability uncertain
• Dividend currently absent; future distributions hinge on OCF normalization

Metrics to Watch:

• OCF/Net income and working capital movements (especially receivables days)
• Operating margin progression vs. SG&A growth
• Gross margin stability vs. data/content procurement costs
• Asset turnover (sales/assets) as a proxy for utilization efficiency
• Any disclosure of interest-bearing debt and cash balances (to validate liquidity profile)
• Recurring revenue mix and contract renewal rates
• Effective tax rate normalization and presence of extraordinary items

Relative Positioning: Within Japan small-cap information services/data peers, Sokets shows above-average balance sheet strength and liquidity but below-peer profitability and ROE, with weaker cash conversion in the current half; improvement hinges on SG&A discipline and receivables management to translate revenue growth into sustainable cash earnings.

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