FLIGHT SOLUTIONS Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.27B
• Operating Income: ¥-193M
• Net Income: ¥-206M
• Earnings per Unit (EPU): ¥-17.55

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution Information

Segment 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 shrinking sales and deep operating losses, pointing to a challenging first half and an elevated turnaround hurdle for the second half. Revenue declined 9.7% YoY to 12.66, while gross profit was 1.38, implying a low gross margin of 10.9%. SG&A of 3.74 overwhelmed gross profit, resulting in operating income of -1.93 and an operating margin around -15%. Non-operating income was effectively not disclosed, while non-operating expenses of 0.18 pushed ordinary income to -2.05. Net income came in at -2.06 (EPS -17.55 JPY), for a reported net margin of -16.3%. Balance sheet leverage is high with D/E at 2.75x and interest coverage negative (-41.98x), increasing financial risk despite a current ratio of 142%. Cash on hand of 4.54 and current assets of 9.12 cover current liabilities of 6.41, but negative operating cash flow (-4.77) indicates pressure on liquidity if losses persist. ROE is deeply negative at -56.3% (DuPont: margin -16.3%, asset turnover 0.874, leverage 3.96x), reflecting poor profitability amplified by leverage. ROIC is also severely negative at -75.7%, underscoring capital inefficiency. EBITDA was -1.09 and FFO/AFFO proxies (if used) also negative, consistent with weak underlying cash generation. Compared to revenue contraction of 9.7%, SG&A remained heavy; with no disclosed cost-rightsizing, operating leverage worked adversely. Margin comparison directionally indicates compression versus a breakeven/positive baseline, but precise YoY basis-point changes for operating and net margins are not disclosed; gross margin stands at 10.9%. Earnings quality is a concern: OCF was more negative than net income (despite an OCF/NI ratio reading >1 due to both being negative), implying working capital and cash conversion pressure. Financing CF of +1.31 suggests reliance on external funding (likely debt) to bridge cash burn, which is risky given leverage. Forward-looking, the company must either lift gross margins (pricing/mix) and/or cut SG&A to approach breakeven, while stabilizing working capital; otherwise, leverage could constrain flexibility. Given accumulated deficits (retained earnings -23.53) and negative ROIC, strategic portfolio/pricing resets and tighter cost control appear necessary to restore capital efficiency.

Profitability Analysis

DuPont decomposition (current period): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-16.3%) × 0.874 × 3.96 ≈ -56.3%. The main drag is the net profit margin (operating loss of -1.93 on 12.66 revenue; operating margin about -15%), while high financial leverage (3.96x) magnifies the negative return to equity. Asset turnover at 0.874 is moderate for a software/service-oriented firm but cannot offset the margin deficit. Business drivers: gross margin is low at 10.9% (1.38/12.66), indicating limited value-add or adverse mix/pricing versus cost base; SG&A of 3.74 exceeds gross profit by a wide margin, showing insufficient scale or cost control. Sustainability: without a structural uplift in gross margin (e.g., higher-margin software, IP, maintenance) and/or meaningful SG&A rationalization, the negative margin is not sustainable and will continue to depress ROE. Warning flags: SG&A growth vs revenue growth is not disclosed for YoY comparison, but revenue fell 9.7% while SG&A remains heavy relative to gross profit, implying unfavorable operating leverage.

Growth Assessment

Top-line contracted 9.7% YoY to 12.66, suggesting weaker demand or delayed projects/orders. Profitability deteriorated to an operating loss of -1.93 with a net loss of -2.06; with gross margin only 10.9%, the current mix likely lacks sufficient high-margin contribution. EBITDA at -1.09 indicates negative operating performance even before D&A (0.84). With negative OCF (-4.77), underlying growth quality is weak and possibly burdened by working capital outflows (receivables/inventory build or lower payables). No segment or backlog data are disclosed, limiting forward visibility. Near-term outlook hinges on: restoring gross margin (pricing, mix shift to higher value services/software), cost reduction to align SG&A with current scale, and improved billing/collection cycles. Absent these, H2 must deliver substantial revenue recovery and margin improvement just to stabilize cash burn.

Financial Health

Liquidity: Current ratio 142% and quick ratio 124% indicate short-term liquidity above minimum thresholds, supported by cash of 4.54 against current liabilities of 6.41. Solvency: D/E is high at 2.75x (warning) and interest coverage is negative (-41.98x), signaling elevated financial risk. Maturity mismatch: Current assets (9.12) exceed current liabilities (6.41), but persistent negative OCF could erode the cushion; short-term borrowings of 1.50 add refinancing risk if cash burn continues. Capital structure: Total assets 14.48 vs equity 3.66 imply leverage of ~3.96x; retained earnings are deeply negative (-23.53), constraining balance sheet flexibility. No off-balance sheet obligations were disclosed in the dataset.

Cash Flow Quality

OCF was -4.77 versus net income -2.06. While the computed OCF/NI ratio reads 2.32x, both figures are negative; qualitatively, cash generation is worse than accrual earnings, which is a quality concern. The gap likely reflects working capital outflows and/or non-cash items not offsetting cash burn (D&A 0.84 vs EBITDA -1.09 implies limited add-back benefit). Capex outflow was modest at -0.21, so cash drain is driven by operations rather than investment. Financing CF of +1.31 suggests reliance on external funding to cover negative FCF. With no disclosure of detailed working capital components beyond balances, signs of manipulation cannot be assessed; however, negative OCF alongside revenue decline raises caution around collections and project cash timing. Sustainability: Current OCF trajectory is not sufficient to fund operations and any dividends; stabilization requires both margin improvement and working capital discipline.

Dividend Sustainability

Dividend data are unreported. Given net loss (-2.06), negative OCF (-4.77), and accumulated deficits (retained earnings -23.53), distributable capacity appears constrained under JGAAP solo-entity norms. Free cash flow is not fully disclosed, but with OCF negative and only modest capex (-0.21), FCF is likely negative, implying poor coverage for any cash returns. Unless profitability and OCF recover, a conservative dividend stance would be expected; no evidence of repurchases or payouts was provided.

Risk Assessment

Business Risks:

• Low gross margin (10.9%) and adverse operating leverage leading to sustained operating losses
• Revenue contraction (-9.7% YoY) indicating demand softness or competitive/pricing pressure
• Execution risk in cost restructuring and margin uplift (product mix shift, pricing, delivery efficiency)
• Dependence on timely collections and project milestones given negative OCF

Financial Risks:

• High leverage (D/E 2.75x) with negative interest coverage (-41.98x)
• Refinancing/liquidity risk if cash burn persists (OCF -4.77; reliance on financing CF +1.31)
• Capital impairment risk given negative ROE (-56.3%) and ROIC (-75.7%)
• Limited equity buffer (equity 3.66 vs assets 14.48) and accumulated deficits (-23.53 retained earnings)

Key Concerns:

• Sustained negative cash generation from operations
• Insufficient gross profit to cover SG&A without scale or cost cuts
• Potential covenant or borrowing capacity constraints if losses continue
• Data limitations (lack of segment, order backlog, or detailed SG&A breakdown) obscuring turnaround levers

Investment Implications

Key Takeaways:

• Top-line fell 9.7% with gross margin at 10.9%, driving an operating margin around -15%
• High leverage (D/E 2.75x) and negative interest coverage elevate solvency risk
• OCF (-4.77) worse than NI (-2.06) underscores weak cash conversion and working capital pressure
• ROE (-56.3%) and ROIC (-75.7%) reflect severe capital inefficiency
• Liquidity is adequate short term (current ratio 142%) but at risk if cash burn persists

Metrics to Watch:

• Gross margin trajectory and mix/pricing improvements
• SG&A run-rate vs revenue (evidence of cost actions)
• Quarterly OCF and working capital movements (AR days, project billing)
• Debt levels and interest coverage; refinancing timelines
• Order intake/backlog and pipeline conversion for H2 recovery

Relative Positioning: Within small-cap Japanese IT/services peers, profitability and cash conversion are notably weaker, with higher leverage and lower margins increasing execution risk; near-term positioning hinges on demonstrable cost control and margin restoration.

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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