PATH Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.26B
• Operating Income: ¥-322M
• Net Income: ¥-320M
• EPS: ¥-4.25

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: FY2026 Q2 was weak with a substantial operating loss despite double-digit revenue growth. Revenue rose 12.6% YoY to 12.65, but operating income was -3.22 and net income was -3.20, indicating that growth did not translate into profitability. Gross profit was 6.60, yielding a high gross margin of about 52.1%, but this was more than offset by SG&A of 9.82. Operating margin was approximately -25.5%, ordinary margin -25.5%, and net margin -25.3%, all deeply negative. EBITDA was -2.95, and interest coverage was sharply negative at about -93x, underscoring weak earnings capacity relative to financing costs. ROE was -12.8% (DuPont-based), driven mainly by a severely negative net margin rather than leverage. Asset turnover was modest at 0.401 and leverage relatively low at 1.26x, so profitability drag is primarily operational. Cash generation was weak: operating cash flow was -1.82 versus net income of -3.20, giving an OCF/NI ratio of 0.57, which flags earnings quality and cash conversion issues. Liquidity appears adequate at face value (current ratio 292.9%, quick ratio 136.2%), but cash on hand is only 0.98 against short-term loans of 0.95 and current liabilities of 4.46, making inventory conversion critical. The balance sheet shows accumulated losses (retained earnings -26.28) despite total equity of 25.05 supported by large capital stock (20.30) and capital surplus (30.91). Intangibles and goodwill total 4.26, raising impairment risk if losses persist. Financing cash inflow of 3.24 plugged part of the operating deficit, pointing to reliance on external funding in the absence of positive OCF. ROIC is very weak at -12.2%, well below typical cost of capital, implying value destruction unless the margin structure improves. Margin expansion or compression in basis points cannot be quantified due to lack of comparable prior-period margin data, but current margins are significantly negative. Forward-looking, the company must either lift revenue scale and gross profit or structurally reduce SG&A to achieve breakeven; absent that, continued losses and cash burn may necessitate further financing. Overall, the quarter highlights a business model currently burdened by cost structure and cash conversion challenges, with solvency presently comfortable but reliant on working capital normalization and funding access.

Profitability Analysis

ROE decomposition (DuPont): ROE (-12.8%) = Net Profit Margin (-25.3%) × Asset Turnover (0.401) × Financial Leverage (1.26x). The dominant driver of negative ROE is the severely negative net margin; asset turnover is modest and leverage is low, so they contribute far less to the overall result. The operational reason is that SG&A (9.82) exceeded gross profit (6.60) by a wide margin, leading to an operating loss (-3.22) despite a solid gross margin (~52%). This points to insufficient scale and/or elevated overhead relative to the current revenue base. Non-operating items were largely neutral (income 0.04, expenses 0.05), so they did not materially affect profitability. The change analysis versus prior periods cannot be quantified due to missing YoY/HoH margin data, but the current structure indicates negative operating leverage. Sustainability: absent a step-change in revenue scale, gross profit mix improvement, or SG&A reductions, the negative margin appears structurally persistent rather than one-time. Concerning trends: SG&A outstripping gross profit is a key red flag; interest coverage is deeply negative, implying low resilience to financing costs.

Growth Assessment

Revenue grew 12.6% YoY to 12.65, a positive topline signal. However, growth quality is weak as operating income (-3.22) and net income (-3.20) remained negative; growth did not translate into operating leverage. Gross margin is strong at ~52.1%, suggesting product/service economics may be sound, but overhead intensity suppresses earnings. With limited disclosure on segment mix or customer concentration, sustainability of the 12.6% growth is uncertain. The absence of reported R&D or detailed SG&A composition limits insight into whether spending is growth-investive or purely overhead. Near-term outlook hinges on cost control and working capital normalization; any slowdown in demand or inventory turnover would pressure both P&L and cash flow. Without evidence of one-off charges or non-recurring items, losses appear recurring, indicating that returning to breakeven will require structural actions or further scale.

Financial Health

Liquidity: Current ratio 292.9% and quick ratio 136.2% indicate ample coverage of current liabilities (4.46) by current assets (13.07), though cash (0.98) plus receivables (1.82) only slightly exceed short-term loans (0.95), making inventory conversion (6.99) important to meet obligations. Solvency: Debt-to-equity is conservative at 0.26x, with reported short-term loans 0.95 and long-term loans 1.40. No explicit warnings as Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch risk: manageable given current assets exceed current liabilities by 8.61, but reliance on inventory turnover is a key execution risk. Equity remains positive at 25.05, supported by large capital surplus; however, retained losses (-26.28) constrain flexibility. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF was -1.82 versus net income -3.20, yielding OCF/NI of 0.57, which is below the 0.8 threshold and flags weak earnings quality and cash conversion. Financing CF of +3.24 indicates reliance on external funding to cover operating shortfalls. Investing CF was unreported; Capex is shown at -1.82. Indicatively, FCF (OCF - Capex) would be approximately -3.64 if capex is the main investing outflow, but this is approximate due to missing investing items. Working capital details are limited, but the high inventory balance (6.99) relative to receivables (1.82) and cash (0.98) suggests cash is tied up in stock, which may be dragging OCF. No obvious signs of working capital manipulation are detectable from the limited disclosure, but negative OCF alongside rising revenue can indicate elongating cash conversion cycle if inventories are building.

Dividend Sustainability

Dividend data is unreported; payout ratios are not calculable. Given negative EPS (-4.25 JPY), negative operating and net income, and negative indicative FCF, internal coverage for any cash distributions would be weak. Retained earnings are negative (-26.28), which under JGAAP can restrict the capacity to pay dividends absent special reserves or legal retained earnings adjustments. Policy outlook cannot be inferred from the data; however, restoring profitability and OCF would be prerequisites for sustainable distributions.

Risk Assessment

Business Risks:

• Structural cost overhang: SG&A (9.82) exceeds gross profit (6.60), embedding negative operating leverage.
• Execution risk on inventory turnover: inventories (6.99) are high relative to cash (0.98) and receivables (1.82).
• Impairment risk: goodwill (2.09) and intangibles (2.17) could face write-downs if losses persist.
• Demand sensitivity: topline growth may not be durable without evidence of stable customer or segment mix.

Financial Risks:

• Negative OCF (-1.82) and reliance on financing CF (+3.24) to fund operations.
• Very weak interest coverage (~-93x), leaving limited buffer against rate increases or earnings shocks.
• Accumulated deficit (retained earnings -26.28) reduces financial flexibility.
• Liquidity concentration in inventories; cash coverage of current liabilities is thin without conversion.

Key Concerns:

• ROIC at -12.2% indicates value dilution unless margins improve materially.
• Sustained net losses (-3.20) with no evidence of one-off items suggest ongoing profitability headwinds.
• Limited disclosure (many items unreported) constrains transparency and risk monitoring.

Investment Implications

Key Takeaways:

• Revenue grew 12.6% YoY to 12.65 but failed to convert to profit; operating income -3.22 and net income -3.20.
• Gross margin is strong (~52.1%), but SG&A intensity drives an operating margin of about -25.5%.
• OCF/NI of 0.57 and negative OCF highlight cash conversion weakness; financing inflows covered the gap.
• Balance sheet liquidity is adequate on a current ratio basis, but cash is low and inventory-heavy.
• ROE (-12.8%) and ROIC (-12.2%) signal poor capital efficiency and value destruction risk.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• OCF and inventory turnover days (to validate cash conversion)
• Interest coverage and financing cash flow dependence
• Impairment indicators for goodwill/intangibles
• Equity base and retained earnings recovery

Relative Positioning: Compared with profitable small-cap peers, the company shows inferior profitability and cash conversion despite acceptable balance-sheet leverage, making near-term performance highly sensitive to cost control and working capital execution.

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