ADR120S,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18M
• Operating Income: ¥-332M
• Net Income: ¥-131M
• EPS: ¥-14.69

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 very weak, with a collapse in revenue and deep operating losses driven by fixed cost burden on a very small top line. Revenue fell 80.0% YoY to 0.18 (100M JPY), yielding gross profit of only 0.06 and a gross margin of 34.9%. SG&A was 3.39, dwarfing gross profit and resulting in operating loss of -3.32. Non-operating income/expense netted to -0.15, driven largely by interest expense of 0.15, taking ordinary income to -3.47. Profit before tax was -1.33, implying sizable extraordinary gains of roughly 2.14 that partially offset the ordinary loss (extraordinary line not disclosed). Net income was -1.31, translating to EPS of -14.69 JPY and ROE of -45.6%. DuPont shows net margin at -727.8%, asset turnover at 0.03x, and financial leverage of 2.10x, underscoring a profitability and efficiency problem rather than a leverage issue. Operating cash flow was -3.57, worse than net loss, signaling pressure on cash despite a headline OCF/NI ratio that is not economically meaningful due to both figures being negative. Liquidity at quarter-end appeared adequate with current assets of 5.74 vs current liabilities of 1.97 (current ratio 291.5%) and cash/deposits of 2.90. Solvency is more concerning: interest coverage is deeply negative (-21.99x), and ROIC is -14.0%, pointing to value destruction. Balance sheet equity stands at 2.87 with retained earnings of -27.50, indicating heavy accumulated losses and limited buffer for further shocks. Financing cash flow was a large outflow (-25.98), likely repayment of debt or other financing, compounding cash usage (details unreported). Capex was minimal at 0.08, so the loss and working capital movements, not investment, drove cash burn. Margin comparisons in basis points cannot be assessed YoY due to missing prior-period profitability disclosures beyond revenue. Forward-looking, the company must either restore revenue scale quickly or cut fixed costs to reach break-even; otherwise, ongoing losses and negative OCF pose going-concern and refinancing risks. Given the very small revenue base and high SG&A, near-term recovery likely hinges on customer wins or project ramp-ups, neither of which are disclosed here.

Profitability Analysis

ROE decomposition: ROE (-45.6%) = Net Profit Margin (-727.8%) × Asset Turnover (0.030x) × Financial Leverage (2.10x). The dominant driver of the weak ROE is the extremely negative net margin, reflecting a very small revenue base against a largely fixed SG&A cost structure and interest burden. Asset turnover at 0.03x is also poor, indicating underutilized assets relative to sales. Business reasons: revenue shrank 80% YoY to 0.18 while SG&A remained high at 3.39, creating severe negative operating leverage; interest expense of 0.15 further pressured ordinary income. Sustainability: without a sharp revenue rebound or meaningful SG&A cuts, losses are likely to persist; the implied extraordinary gains this quarter are non-recurring and should not be relied upon to sustain PBT. Concerning trends: SG&A substantially exceeds gross profit, and interest coverage is negative, indicating the current cost base is not supported by operating scale.

Growth Assessment

Top-line contracted 80.0% YoY to 0.18, an abrupt deceleration that suggests lost contracts, project delays, or product demand weakness. Gross profit was only 0.06, leaving little room to absorb fixed costs. Operating income deteriorated to -3.32, and ordinary income to -3.47, with PBT cushioned by undisclosed extraordinary gains (~2.14). Given minimal capex, growth investments do not explain the loss; rather, operating deleverage is the key factor. With asset turnover at 0.03x and ROIC at -14.0%, current operations are destroying value. Near-term growth sustainability is low unless revenue normalizes; lack of segment/contract pipeline disclosure limits visibility. Outlook: cautious, with priority on revenue restoration and/or cost restructuring to restore operating leverage; absent that, further losses and cash burn likely.

Financial Health

Liquidity is currently adequate: current ratio 291.5% and quick ratio 291.5%, with cash/deposits of 2.90 versus short-term loans of 0.50. Working capital is 3.77, providing a short-term buffer. Solvency signals are mixed: reported D/E is 1.10x (not excessive), but interest coverage is -21.99x, highlighting earnings' inability to service interest from operations. Maturity mismatch risk appears limited in the near term (cash and current assets exceed current liabilities), but ongoing negative OCF threatens medium-term liquidity. A data inconsistency is noted: disclosed long-term loans of 22.94 exceed total liabilities of 3.16, which suggests a classification/reporting issue; we rely on the reported D/E for solvency interpretation but flag this for verification. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF was -3.57 versus net income -1.31; although the mechanical OCF/NI ratio is 2.72x, both are negative, indicating weaker cash conversion and potential working capital outflows or loss-driven cash burn. With capex of only 0.08, an indicative FCF proxy would be around -3.65 if no other investing flows exist (investing CF otherwise unreported). This level of cash burn is not sustainable for dividends or debt reduction. No signs of deliberate working capital improvement; instead, cash outflow likely reflects operating losses and possible receivable/payable movements (details unreported). Earnings quality is low, relying on implied extraordinary gains to narrow PBT while core OCF is more negative than NI.

Dividend Sustainability

Dividend data is unreported; given negative net income and negative OCF, any cash dividend would be economically unsustainable. Calculated payout ratio is not meaningful due to losses. With indicative negative FCF and weak interest coverage, distribution capacity is constrained; prudent policy would be capital preservation until operating cash flow turns positive. Outlook: unless profitability and OCF improve, dividend resumption/initiation appears unlikely.

Risk Assessment

Business Risks:

• Severe revenue contraction (-80% YoY) indicating demand loss or project delays
• Negative operating leverage from a fixed SG&A base versus a very small revenue base
• Execution risk in winning or ramping new contracts to restore scale
• Dependence on non-recurring gains (implied extraordinary) to narrow losses

Financial Risks:

• Going-concern risk from persistent losses and negative OCF
• Interest coverage deeply negative (-21.99x), raising debt service concerns
• Refinancing/covenant risk if lenders require profitability or coverage thresholds
• Potential data inconsistency on long-term loans, warranting validation of true leverage

Key Concerns:

• ROIC at -14.0% indicates value destruction
• Asset turnover 0.03x suggests underutilized asset base
• Retained earnings of -27.50 reflect accumulated deficits and limited equity cushion
• Visibility low due to many unreported line items (e.g., SG&A breakdown, extraordinary items, investing CF)

Investment Implications

Key Takeaways:

• Top-line collapse with SG&A far above gross profit led to deep operating losses
• Ordinary loss (-3.47) only partially offset by implied one-offs to reach PBT -1.33
• OCF more negative than net income, indicating cash burn from operations
• Short-term liquidity is adequate, but solvency coverage is weak (negative interest coverage)
• ROE (-45.6%) and ROIC (-14.0%) signal unsustainable economics without a rapid turnaround

Metrics to Watch:

• Quarterly revenue run-rate and order backlog/pipeline disclosures
• SG&A trend versus revenue to gauge operating leverage improvement
• Operating cash flow and working capital movements
• Interest coverage and any covenant/leverage disclosures
• Any disclosure on extraordinary items and their recurrence

Relative Positioning: Versus small-cap domestic peers in IT/services, the company appears significantly weaker on profitability (negative operating margin, ROE -45.6%), efficiency (asset turnover 0.03x), and capital efficiency (ROIC -14.0%), with only short-term liquidity standing out as comparatively adequate; solvency coverage is notably worse.

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