DLE Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥691M
• Operating Income: ¥-337M
• Net Income: ¥-71M
• Earnings per Unit (EPU): ¥-0.96

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 operationally with a sizeable operating loss despite ample liquidity. Revenue was 6.91, down 22.4% YoY, reflecting top-line pressure in the content/entertainment pipeline. Gross profit was 2.62 on cost of sales 4.30, implying a gross margin of 37.9%. SG&A of 6.00 exceeded gross profit by 3.38, driving operating income to -3.37. Non-operating income/expenses netted to roughly -0.34 (0.03 in income vs 0.37 in expenses), taking ordinary income to -3.71. Below the line, profit before tax was -0.58 and net income -0.41, indicating material extraordinary gains netting losses at the ordinary level, though details were not disclosed. Total comprehensive income deteriorated to -5.10, suggesting sizable valuation losses in OCI, likely related to investment securities (6.11 on the balance sheet). EPS was -0.96 yen and calculated ROE was -2.8%, hurt primarily by negative margins rather than leverage. Operating margin compressed sharply into negative territory; versus last year, we infer margin compression measured in thousands of basis points given the move from positive/near break-even to -48.8% operating margin (operating income -3.37 / revenue 6.91). Gross margin at 37.9% is insufficient to cover a fixed-cost SG&A base of 6.00 at current revenue scale. Earnings quality cannot be validated due to the absence of cash flow data; OCF/NI is not calculable, a key limitation. Liquidity remains strong: cash and deposits of 12.95 cover current liabilities of 7.07 (current ratio 243.6%, quick ratio 239.6%). Leverage looks moderate with a reported D/E of 0.73x and short-term loans of only 0.25, but retained earnings are deeply negative at -13.61. The gap between net income (-0.41) and total comprehensive income (-5.10) highlights market volatility risk tied to securities holdings. Forward-looking, the company must either restore revenue scale or reduce SG&A to approach break-even; otherwise, recurring losses could erode equity from the current 14.81. Near-term priorities likely include tightening the content investment cycle, monetization of IP, and careful management of securities-related risks affecting OCI.

Profitability Analysis

ROE decomposition (DuPont): ROE (-2.8%) = Net Profit Margin (-5.9%) × Asset Turnover (0.269) × Financial Leverage (1.73x). The weakest link is clearly the net profit margin, which turned negative due to operating losses; asset turnover is low but secondary, and financial leverage is not excessive. The business driver is a 22.4% YoY revenue decline coupled with a largely fixed SG&A base (6.00) that exceeded gross profit (2.62), flipping operating income to -3.37. Non-operating items were small on a net basis (-0.34), so the margin deterioration is essentially operating. Sustainability: the negative operating margin is not sustainable; a recovery hinges on rebuilding the pipeline and/or reducing fixed costs. Concerning trends: SG&A growth vs revenue cannot be measured precisely due to lack of YoY SG&A disclosure, but the current cost base is misaligned with revenue scale (gross profit < SG&A), indicating adverse operating leverage. If revenue does not rebound, continued losses will pressure equity and ROE.

Growth Assessment

Top-line contracted 22.4% YoY to 6.91, evidencing weakness in project deliveries or IP monetization. Gross profit of 2.62 implies partial resilience in pricing/mix, but absolute gross profit is too small to cover SG&A. Operating loss of -3.37 and ordinary loss of -3.71 confirm deterioration across core operations. The swing to profit before tax of -0.58 versus ordinary loss suggests unreported extraordinary items that partially offset operating weakness; these are not dependable growth drivers. Profit quality is low given reliance on non-core below-the-line support and an OCI hit that took total comprehensive income to -5.10. Outlook depends on restoring content release cadence and licensing revenues; absent that, near-term growth will be constrained and cost normalization becomes critical. With investment securities at 6.11, market conditions could further influence reported performance via valuation effects.

Financial Health

Liquidity is solid: current assets 17.22 vs current liabilities 7.07 yield a current ratio of 243.6% and a quick ratio of 239.6%. Cash and deposits (12.95) comfortably exceed short-term obligations (7.07), minimizing near-term refinancing risk. Solvency appears manageable with total liabilities of 10.84 against equity of 14.81 (D/E 0.73x). No explicit red flags on thresholds: Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch risk is low: short-term loans are only 0.25 and accounts payable 1.64 are covered by cash and receivables (1.72). Retained earnings are negative (-13.61), indicating cumulative losses and thin buffer for future shocks despite current equity. Investment securities (6.11) introduce market valuation volatility, as reflected in the large negative comprehensive income; this can move equity without cash impact. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income and FCF cannot be assessed; this is a key limitation to evaluating earnings quality. Given operating losses, underlying OCF risk is skewed negative unless working capital inflows offset. Working capital appears conservative with low inventories (0.28) and receivables (1.72) roughly matching payables (1.64), reducing risk of aggressive working-capital-driven earnings management. Cash balance (12.95) provides cushion for near-term commitments, but sustainability of cash burn cannot be gauged without OCF and capex data. No signs of deliberate period-end working capital manipulation are evident from the static balance sheet, but confirmation would require cash flow statements.

Dividend Sustainability

Dividend data was not reported; payout ratio and FCF coverage are not calculable. With net income negative (-0.41) and operating losses, capacity to pay dividends from earnings is currently weak. While liquidity is adequate, using cash to fund dividends during losses would not be sustainable unless OCF is positive, which is unknown. Policy outlook likely conservative until a return to operating profitability is demonstrated.

Risk Assessment

Business Risks:

• Revenue volatility in content/IP-driven businesses; FY2026 Q2 revenue down 22.4% YoY
• Adverse operating leverage: gross profit (2.62) below SG&A (6.00) leading to operating losses
• Execution risk on new titles/projects and licensing monetization
• Potential impairment risk on goodwill (0.60) and intangible assets (0.60) if underperformance persists

Financial Risks:

• Equity erosion risk due to recurring losses; retained earnings already -13.61
• OCI volatility from investment securities (6.11) evidenced by comprehensive income of -5.10
• Limited visibility on cash generation due to unreported OCF/FCF
• Interest coverage flagged as weak (-1531.82x) due to operating loss, though absolute interest burden is minimal

Key Concerns:

• Sustained negative operating margin (-48.8%) at current revenue base
• Dependency on extraordinary items to narrow loss between ordinary and pre-tax
• Need for SG&A realignment or revenue recovery to approach break-even
• Market risk on securities holdings that can swing equity via OCI

Investment Implications

Key Takeaways:

• Operational underperformance: operating loss of -3.37 on revenue of 6.91 (gross margin 37.9%)
• Margins compressed materially; SG&A exceeds gross profit by 3.38
• Liquidity strong (current ratio 243.6%, cash 12.95) and leverage moderate (D/E 0.73x)
• Comprehensive income (-5.10) signals market-driven equity volatility from securities
• ROE -2.8% driven by negative net margin; asset turnover low at 0.269

Metrics to Watch:

• Quarterly revenue trajectory and booking pipeline
• Operating margin and SG&A run-rate versus gross profit
• OCF and FCF once disclosed; OCF/NI ratio target >1.0
• Changes in investment securities valuation and OCI impact
• Any impairments on intangibles/goodwill and equity level trend

Relative Positioning: Versus domestic entertainment/content peers, the company currently lags on profitability and scale efficiency but retains above-average liquidity and manageable leverage; recovery depends on rebuilding monetization cadence and aligning fixed costs.

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