Nextgen,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.89B
• Operating Income: ¥190M
• Net Income: ¥156M
• EPS: ¥50.54

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: A strong FY2026 Q2 with broad-based margin expansion and robust cash conversion, supported by a solid balance sheet and disciplined cost control. Revenue rose 18.4% YoY to 18.94, while operating income surged 78.3% YoY to 1.90 and net income climbed 85.9% YoY to 1.56. Operating margin improved to 10.0% (1.90/18.94), implying approximately 333 bps expansion from roughly 6.7% in the prior-year period based on reported growth rates. Gross margin printed at 40.5%, and EBITDA margin reached 17.1%, indicating improved operating leverage. Ordinary income of 1.88 (+78.9% YoY) shows that performance was driven by core operations; non-operating items were minimal (non-op income 0.02; non-op expenses 0.05). Net margin came in at 8.2%, helped by a low effective tax rate of 17.0%. Cash generation outpaced earnings, with operating cash flow of 4.59 equating to 2.94x net income, signaling high earnings quality. The balance sheet remains conservative: cash and deposits of 20.04 exceed total liabilities of 14.81, and current ratio stands at a healthy 239.8%. Debt is modest with long-term loans of 2.13 and a D/E ratio of 0.64x; interest coverage is very strong at 76.7x. ROE is 6.7% via DuPont (8.2% NPM × 0.499 ATO × 1.64x leverage), and ROIC is reported at an excellent 30.2%, reflecting an asset-light model and efficient capital use. Capex was negligible at 0.03, supporting free cash generation even as investing CF details were not disclosed. The calculated payout ratio is a conservative 19.8%, suggesting room for shareholder returns, though DPS was unreported. Forward-looking, the widened operating margin and strong OCF provide cushion for execution amid potential tax normalization and demand cyclicality. Key watch items are revenue sustainability into 2H, SG&A discipline as hiring scales, and any normalization in the tax rate. Overall, the quarter indicates improving profitability momentum with solid financial resilience and ample liquidity to support growth.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 8.2% × Asset Turnover 0.499 × Financial Leverage 1.64x = ROE 6.7%. The largest contributor to the YoY improvement is the Net Profit Margin, as operating income (+78.3% YoY) far outpaced revenue growth (+18.4% YoY), implying substantial operating margin expansion (~333 bps to 10.0%). Business driver: higher gross profit conversion (40.5% GM) and fixed-cost leverage within SG&A (SG&A ratio ~30.5% of sales) likely drove operating leverage; non-operating items were small, so core operations explain the bulk of the lift. Sustainability: part of the margin gain appears structural (scale benefits and cost discipline), but some may be timing-related (project phasing or mix) and the low 17% tax rate could normalize, moderating net margin. Asset turnover at 0.499 reflects an asset-light model with high cash and sizable intangibles (6.29), and is relatively stable; further gains may be limited without faster top-line growth. Leverage at 1.64x is moderate and not the main driver of ROE; incremental ROE improvement will need to come from margins and turnover rather than higher leverage. Concerning trends: none evident; we cannot verify whether SG&A growth exceeded revenue due to missing YoY SG&A data, but the surge in operating income suggests SG&A discipline in the period.

Growth Assessment

Top-line growth was solid at +18.4% YoY (to 18.94), indicating healthy demand. Profit growth was significantly stronger: operating income +78.3%, ordinary income +78.9%, and net income +85.9%, evidencing strong operating leverage. Operating margin is now 10.0%; ordinary and net margins are 9.9% and 8.2%, respectively. Revenue sustainability hinges on continued project wins and execution; the current mix supports margins, but mix shifts could introduce variability. The low effective tax rate (17.0%) was a tailwind to net income; normalization toward mid-20%s would trim net margin by ~100–300 bps if all else equal. Non-operating contributions were minimal (interest income 0.02; interest expense 0.02), underscoring quality of earnings. With capex at only 0.03 and strong OCF, growth investments appear funded internally. Outlook: Continued mid-teens revenue growth with disciplined SG&A could sustain a high-single-digit net margin; key sensitivities include project timing and potential wage inflation.

Financial Health

Liquidity is strong: current assets 29.96 vs current liabilities 12.49 yields a current ratio of 239.8% and quick ratio of 239.8% (no inventories reported). Cash (20.04) alone covers 1.6x total current liabilities and exceeds total liabilities (14.81), indicating a net cash position. Solvency is solid with total equity of 23.14 and D/E of 0.64x; long-term loans total 2.13. No thresholds breached: Current Ratio well above 1.0; D/E well below 2.0. Maturity mismatch risk appears low given ample liquidity and limited disclosed short-term borrowings (short-term loans unreported) versus current assets. Off-balance sheet obligations are not disclosed in the provided data; no explicit commitments noted. Working capital is positive at 17.47, supported by accounts receivable of 7.03 and cash of 20.04.

Cash Flow Quality

OCF/Net Income is 2.94x (4.59/1.56), indicating high-quality earnings with strong cash conversion. Free cash flow cannot be fully calculated due to missing investing CF, but capex was minimal at 0.03, suggesting FCF was likely robust in the period. OCF comfortably covers interest (0.02) and supports potential dividends and growth investments. The sharp increase in profit alongside strong OCF reduces risk of accrual-driven earnings; however, without detailed working capital movements (receivables, payables, unbilled), we cannot rule out timing effects. No signs of working capital manipulation are evident from the snapshot; collections appear healthy given the OCF strength.

Dividend Sustainability

The calculated payout ratio is 19.8%, implying a conservative distribution relative to earnings. DPS and total dividends paid were not disclosed; however, given OCF of 4.59 and minimal capex (0.03), dividend coverage by internally generated cash appears ample. Balance sheet liquidity (cash 20.04) further supports sustainability. Policy visibility is limited due to missing DPS track record in this dataset. If tax rates normalize or margins compress, the current low payout provides flexibility to maintain dividends without stressing cash flow.

Risk Assessment

Business Risks:

• Revenue timing and project mix risk that can drive quarter-to-quarter margin volatility.
• Cost inflation (personnel/wage costs) potentially pressuring SG&A and gross margin.
• Execution risk on software/intangible-driven offerings with high amortization (intangible assets 6.29; D&A 1.34).
• Customer concentration or telecom/IT investment cycle sensitivity (industry typical).
• Tax rate normalization risk from 17% toward historical norms reducing net margin.

Financial Risks:

• Limited disclosure on short-term borrowings and investing cash flows introduces uncertainty on near-term cash needs.
• Interest rate risk on existing long-term loans (2.13), albeit impact currently small.
• Intangible asset concentration raises impairment/amortization risk if growth underperforms.

Key Concerns:

• Sustainability of recent ~333 bps operating margin expansion as growth scales.
• Dependence on strong cash conversion to sustain high OCF/NI amid potential working capital swings.
• Lack of detailed SG&A and investing cash flow breakdowns reduces visibility into structural vs. one-off drivers.

Investment Implications

Key Takeaways:

• Strong margin-driven earnings beat: operating income +78% YoY vs revenue +18%.
• Operating margin expanded to ~10.0%, with net margin at 8.2%.
• High-quality earnings: OCF/NI at 2.94x and minimal capex.
• Robust balance sheet: net cash with current ratio ~240% and D/E 0.64x.
• ROE at 6.7% with reported ROIC of 30.2% highlights efficient capital use.
• Low payout ratio (~20%) suggests capacity for sustained or potentially higher shareholder returns, subject to policy.

Metrics to Watch:

• Revenue growth trajectory into 2H and full-year order intake/backlog.
• Operating margin sustainability and SG&A ratio trends.
• Tax rate evolution from 17% and its impact on net margin.
• Working capital dynamics (DSO/DPO) and continuity of strong OCF.
• Capex and R&D intensity given large intangible base and D&A.

Relative Positioning: Within domestic small-cap software/IT peers, the company exhibits above-peer cash conversion, improving double-digit operating margins, and a conservative balance sheet, positioning it favorably for self-funded growth with lower financial risk.

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