Image Information Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥375M
• Operating Income: ¥-88M
• Net Income: ¥-165M
• EPS: ¥-72.04

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Weak quarter with significant operating and net losses despite strong topline growth. Revenue rose 40.7% YoY to 3.75, but gross profit was only 0.36, yielding a low gross margin of 9.5% and an operating loss of -0.88. Operating margin was -23.5% and net margin was -38.7%, underscoring that growth did not translate into profitability. SG&A of 1.24 was 3.4x gross profit, with notable fixed burden such as directors’ compensation of 0.34 and salaries of 0.20, overwhelming the slim gross profit. Ordinary loss was -0.86 and net loss was -1.45 (EPS -72.04 JPY), indicating deterioration below the operating line did not meaningfully change the picture. Cash quality appears mixed: operating cash flow was only -0.06 versus net loss of -1.45, implying accounting losses materially exceeded cash outflow in the period. Liquidity is currently ample with cash of 3.20 and a current ratio of 271%, covering 1.74 of current liabilities. However, solvency is a concern: total equity is thin at 1.50 against total assets of 5.59 (equity ratio roughly 26.8%) and debt-to-equity is elevated at 2.72x. Financial leverage of 3.73x amplified the negative net margin to produce a very weak calculated ROE of -96.7%. Depreciation was modest at 0.07, and capex was minimal at 0.01, suggesting the loss is not investment-driven this quarter. Interest expense was effectively negligible, but the lack of operating profit makes interest coverage metrics meaningless and still flagged as weak. Working capital appears to have softened the cash burn, given OCF much better than NI, but disclosure does not provide drivers. YoY margin comparisons are unavailable, so basis-point expansion/compression cannot be quantified. Near-term focus must be on restoring gross margin through pricing/mix and delivery discipline, and resizing SG&A to achievable gross profit. With retained earnings at -1.15 and negative net income, internal capital generation is currently inadequate, elevating reliance on financing (financing CF +0.47) in the interim. Forward-looking, the company needs to convert growth into contribution margin, improve project execution to lift gross margin above SG&A, and preserve liquidity while addressing high leverage.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-38.7%) × 0.671 × 3.73 ≈ -96.7%. The dominant driver of the weak ROE is the deeply negative net profit margin; asset turnover is moderate and leverage is high, which magnifies losses. Business reason: gross margin at 9.5% is too thin versus a fixed-cost SG&A base of 1.24, resulting in an operating margin of -23.5%. Within SG&A, directors’ compensation (0.34) and salaries (0.20) indicate a cost base not aligned with current gross profit scale. Sustainability: without improvement in project pricing, mix, and delivery efficiency, the current margin structure is not sustainable; conversely, the cost base appears semi-fixed, implying operating leverage could rapidly improve profitability if gross margin rises meaningfully. Concerning trends: SG&A/gross profit at ~344% is structurally high. We cannot assess YoY SG&A growth versus revenue growth due to data unavailability, but the present gap between gross profit and SG&A is the critical profitability constraint.

Growth Assessment

Revenue grew 40.7% YoY to 3.75, indicating strong demand or project ramp-ups. However, growth quality is weak as gross margin is only 9.5%, and revenue growth did not translate into operating profit (operating margin -23.5%). With net margin at -38.7%, the company is prioritizing scale or delivery over profitability, or is experiencing cost overruns/low pricing on projects. The lack of reported R&D or detailed segment data limits assessment of sustainability drivers. Outlook depends on improving contract terms, project execution, and mix to lift gross margin above the SG&A threshold (~1.24), which currently implies a required gross margin uplift or revenue scale-up to at least breakeven. Near-term, maintaining growth while tightening cost controls and pricing discipline is essential.

Financial Health

Liquidity is strong: current assets 4.72 vs current liabilities 1.74, current ratio 271% and cash 3.20 plus receivables 1.13 comfortably cover near-term obligations. Solvency is pressured: total equity 1.50 vs total liabilities 4.08 implies an equity ratio of roughly 26.8% and D/E of 2.72x (warning threshold breached). There is no explicit short-term loan disclosed, and long-term loans total 0.39, but noncurrent liabilities are sizable at 2.34, suggesting other long-term obligations (possibly leases or provisions). Maturity mismatch risk appears low in the short term given cash exceeds current liabilities, but medium-term refinancing or covenant risks could arise if losses persist. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

OCF was -0.06 versus NI of -1.45, yielding OCF/NI of 0.04x, which flags low earnings quality by the benchmark but also indicates accounting losses outpaced cash drain in this quarter. Depreciation is modest (0.07), and capex is minimal (0.01), so accruals and working capital movements likely explain the divergence, though detailed components are not disclosed. A proxy FCF (OCF - capex) is approximately -0.07, suggesting limited cash burn this quarter. Financing CF of +0.47 provided liquidity support. There are no clear signs of working capital manipulation from the limited disclosure, but the large gap between operating loss and OCF suggests significant working capital inflows or non-cash charges; further detail would be needed to evaluate sustainability.

Dividend Sustainability

Dividend data is unreported, and with net loss (-1.45) and negative proxy FCF (~-0.07), distributable capacity appears limited. Retained earnings are negative (-1.15), and leverage is high (D/E 2.72x), which typically constrains dividends under prudent capital policy. Unless profitability and cash generation improve, sustaining or initiating dividends would be challenging. Policy outlook cannot be assessed from the provided data; current conditions suggest a conservative stance is likely warranted.

Risk Assessment

Business Risks:

• Very low gross margin (9.5%) relative to SG&A base, risking persistent operating losses.
• Project execution and pricing risk typical of IT/services (cost overruns on fixed-price contracts, change-order recovery).
• Customer concentration or timing risk could swing quarterly results given small revenue base (3.75).
• Talent retention and compensation pressure (directors’ comp 0.34, salaries 0.20) versus revenue scale.

Financial Risks:

• High leverage (D/E 2.72x) and thin equity buffer (equity ratio ~26.8%).
• Negative ROE (-96.7%) and sustained losses could erode equity further.
• Reliance on financing inflows (Financing CF +0.47) to support liquidity amid negative OCF.
• Potential medium-term refinancing/covenant risk if profitability is not restored.

Key Concerns:

• OCF/NI at 0.04x indicates weak earnings quality and heavy accruals influence.
• Operating margin -23.5% and SG&A/gross profit >300% signal structural profitability issues.
• Noncurrent liabilities 2.34 with limited detail increases uncertainty about future cash commitments.
• Limited disclosure on dividends, investing CF, and segment drivers constrains forward visibility.

Investment Implications

Key Takeaways:

• Topline grew 40.7% YoY, but profitability deteriorated with operating margin -23.5% and net margin -38.7%.
• ROE is sharply negative (-96.7%) driven by losses and high leverage (3.73x financial leverage).
• Liquidity headroom exists (cash 3.20; current ratio 271%), but solvency risk is elevated (D/E 2.72x).
• Earnings quality is weak (OCF/NI 0.04x), though cash burn was modest this quarter (proxy FCF ~-0.07).
• Urgent need to improve gross margin and align SG&A with achievable gross profit.

Metrics to Watch:

• Gross margin trajectory and project-level profitability.
• SG&A run-rate versus gross profit (breakeven threshold).
• OCF and working capital movements (receivables, unbilled, payables).
• Equity ratio and D/E trend; any new financing or covenant disclosures.
• Order backlog and pricing/mix indicators, if disclosed.

Relative Positioning: Within small-cap IT/services peers, revenue growth is strong but profitability and solvency metrics lag due to low gross margin and high operating leverage. Liquidity is comparatively comfortable, offering time to execute a margin turnaround, but equity thinness and losses elevate risk relative to peers with positive operating margins.

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