PATH Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.26B
• Operating Income: ¥-322M
• Net Income: ¥-82M
• 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

PASS Co., Ltd. (consolidated, JGAAP) reported FY2026 Q2 revenue of ¥1,265 million, rising 12.6% YoY, demonstrating top-line momentum despite persistent losses. Gross profit reached ¥589 million with a solid gross margin of 46.5%, indicating decent unit economics at the gross level. However, operating income remained a loss at ¥-322 million (flat YoY), implying that higher SG&A effectively absorbed incremental gross profit and that operating leverage has not materialized. Ordinary income (¥-323 million) and net income (¥-320 million, EPS ¥-4.25) are close to operating loss, reflecting minimal non-operating items and a low interest burden. EBITDA was ¥-318 million (margin -25.1%), underscoring a structurally loss-making cost base with limited depreciation (¥4 million), hence cash burn is driven by operating losses rather than non-cash charges. On the balance sheet, total assets are ¥3,153 million and total liabilities ¥777 million, implying a strong equity buffer of roughly ¥2,505 million (implied equity ratio ~79.5% despite a reported 0.0% placeholder). Liquidity appears comfortable with a current ratio of 276% and quick ratio of 141%, supported by working capital of ¥982 million. Inventories of ¥752 million make up nearly 49% of current assets, highlighting execution risk around turnover and demand visibility. Operating cash flow was ¥-248 million, broadly consistent with the accounting loss (OCF/NI 0.78), suggesting losses are not materially flattered by accruals; however, this also means cash burn continues. Financing cash flow of ¥+573 million funded operations; without reported investing cash flows or cash balances (zeros indicate unreported), cash runway assessment is constrained. DuPont analysis shows ROE of -12.77%, driven by a negative net margin (-25.3%), modest asset turnover (0.401x), and low leverage (1.26x). With zero dividends and a payout ratio of 0%, management is preserving cash as the business seeks scale or cost realignment. The combination of improving revenue, high gross margin, and persistent operating losses suggests the near-term focus must be on SG&A discipline and monetization efficiency. Key watchpoints include inventory management, conversion of revenue growth into operating leverage, and the sustainability of external financing. Data limitations include unreported equity ratio, cash and equivalents, investing cash flows, and share counts; conclusions are based on available non-zero items and standard derivations.

Profitability Analysis

ROE_decomposition: ROE -12.77% = Net margin (-25.30%) × Asset turnover (0.401x) × Financial leverage (1.26x). The negative ROE is primarily a function of the deep operating loss (dragging net margin), while low leverage limits both upside and downside amplification. margin_quality: Gross margin of 46.5% indicates healthy product/service-level economics. However, SG&A absorption is heavy: implied SG&A ≈ gross profit (¥588.8m) minus operating income (¥-322.0m) = ¥910.8m for the half, erasing contribution and yielding an operating margin of -25.4%. Ordinary loss closely tracks operating loss, indicating limited reliance on non-operating income. operating_leverage: Revenue grew 12.6% YoY, but operating loss was flat, suggesting minimal incremental operating leverage; incremental gross profit did not translate to operating profit due to SG&A scale or step-ups. D&A is only ¥4.1m, so improving margins will require real cost control or pricing/mix, not depreciation tailwinds.

Growth Assessment

revenue_sustainability: Top-line grew to ¥1,265m (+12.6% YoY), which appears healthy. The gross margin of 46.5% supports the notion of demand at acceptable pricing, but inventory levels (¥752m) imply reliance on inventory sell-through; sustainability hinges on inventory turnover and repeat demand. profit_quality: EBITDA margin (-25.1%) and operating margin (-25.4%) indicate that profitability is primarily constrained by operating costs rather than gross margin. Ordinary and net losses closely reflect operating loss, suggesting no one-off distortions but also no ancillary profit support. outlook: Near-term profit improvement hinges on SG&A rationalization and better utilization of the installed cost base. If revenue growth persists at low double digits and SG&A growth decelerates, operating leverage could emerge; conversely, inventory overhang or slower growth would prolong losses.

Financial Health

liquidity: Current ratio 276.1% and quick ratio 141.3% indicate ample short-term liquidity on reported figures. Working capital is ¥982.4m, providing a buffer against operating cash outflows. solvency: Debt-to-equity is 0.31x, suggesting low balance sheet risk and capacity to raise funding if needed. Implied equity ratio is ~79.5% (¥2,505m/¥3,153m), despite the unreported 0.0% field. capital_structure: Financing CF of ¥+573.1m suggests reliance on external funding (debt or equity) to offset OCF burn; the modest interest expense (¥1.21m) implies limited debt load currently. The structure remains conservative but dependent on access to capital while losses persist.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.78 (NI ¥-320m vs OCF ¥-248m), indicating losses are substantially reflected in cash terms; accruals are not materially inflating earnings. Low D&A (¥4.1m) means limited non-cash add-backs. FCF_analysis: Free cash flow cannot be precisely assessed given unreported investing cash flows (CapEx not available). Based on OCF alone, pre-financing cash burn is material at ¥-248m for the period. working_capital: Inventories are ¥751.9m (about 48.8% of current assets), creating potential cash tied up in stock and risk of markdowns. With current liabilities of ¥557.8m, the company maintains a cushion, but inventory turns and receivable collection will be pivotal for OCF.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is ¥0.00 with a payout ratio of 0.0%, appropriate given operating and net losses. There is no distributable profit base in the period. FCF_coverage: FCF coverage is unreported (0.00x placeholder). Given negative OCF and unknown CapEx, dividends are not covered by internal cash generation. policy_outlook: Given the ongoing losses, preservation of cash and reinvestment in operations (or cost restructuring) are likely to remain priorities over distributions in the near term.

Risk Assessment

Business Risks:

• Execution risk in converting revenue growth into operating leverage amid high SG&A.
• Inventory concentration risk (¥752m) with potential for obsolescence or markdowns if sell-through lags.
• Demand variability; reliance on sustained double-digit growth to offset fixed cost base.
• Pricing/mix risk that could pressure the 46.5% gross margin.
• Operational scalability challenges, given flat operating loss despite higher sales.

Financial Risks:

• Ongoing cash burn (OCF ¥-248m) requiring continued access to external financing.
• Potential dilution or leverage increase depending on financing mix (debt vs equity not disclosed).
• Working capital drag from high inventories impacting cash conversion.
• Limited interest burden now (¥1.21m), but interest coverage is negative due to EBITDA losses.

Key Concerns:

• Persistent operating losses with no clear operating leverage yet evident.
• High inventory levels relative to current assets and sales base.
• Dependence on financing inflows (¥+573m) to fund operations.
• Data gaps (cash balance, CapEx, share count) limit visibility on runway and per-share metrics.

Investment Implications

Key Takeaways:

• Top-line growth (+12.6% YoY) and strong gross margin (46.5%) indicate underlying demand and pricing power.
• Operating structure remains loss-making (operating margin -25.4%) with SG&A of ~¥911m in the half.
• ROE is negative (-12.77%), driven by margin pressure; leverage is low (1.26x), limiting amplification.
• Liquidity appears sufficient (current ratio 276%) and solvency is strong (implied equity ratio ~79.5%).
• Cash burn persists (OCF ¥-248m), funded by financing inflows (¥+573m); sustainability depends on future access to capital.
• Inventory management is pivotal for cash flow and margin preservation.

Metrics to Watch:

• Quarterly SG&A trend and SG&A-to-sales ratio.
• Gross margin stability and mix effects.
• Operating cash flow and inventory turnover days.
• Revenue growth trajectory vs. headcount/overheads to evidence operating leverage.
• Financing mix (equity vs debt) and resultant D/E and dilution.
• Order backlog/pipeline conversion (if disclosed) to gauge demand sustainability.

Relative Positioning: Within small-cap TSE peers, PASS exhibits stronger balance-sheet solvency (low D/E, high implied equity ratio) but weaker profitability and cash generation, with a need to demonstrate operating leverage and working-capital discipline to converge toward peer profitability norms.

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