Datasection Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.75B
• Operating Income: ¥-1.37B
• Net Income: ¥-246M
• EPS: ¥-71.97

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

DataSection Co., Ltd. (TSE: 39050) reported FY2026 Q2 consolidated results under JGAAP showing strong top-line growth but persistent, material operating losses. Revenue rose 28.4% year over year to ¥1,746 million, indicating healthy demand or successful business expansion. Gross profit reported was ¥584 million, equating to a 33.5% gross margin, suggesting mid-30% unit economics at the contribution level. Despite this, operating income remained deeply negative at ¥-1,370 million (flat YoY), implying limited operating leverage and a heavy fixed-cost burden through SG&A/R&D. EBITDA was ¥-1,283 million, reinforcing that losses are predominantly operating in nature and not driven by depreciation alone. Ordinary income declined to ¥-1,430 million, reflecting additional non-operating costs, including interest expense of ¥17 million. Net income was ¥-1,465 million (flat YoY), with EPS at ¥-71.97, indicating continued dilution of shareholder returns in earnings terms. Operating cash flow was negative at ¥-395 million, but the OCF/Net Income ratio of 0.27 indicates that roughly a quarter of accounting losses translate into cash outflow, suggesting the presence of non-cash charges. The DuPont framework yields an ROE of approximately -25.0% driven by a very weak net margin (-83.9%), low asset turnover (0.127x), and moderate financial leverage (2.36x). On the balance sheet, total assets stood at ¥13,802 million and total equity at ¥5,859 million, implying an equity ratio near 42% when computed from these figures, despite a reported equity ratio field of 0.0% (likely undisclosed). Liquidity appears tight: the current ratio is 74.1% and working capital is negative ¥486 million, indicating near-term funding pressure. Debt-to-equity is a modest 0.37x on the disclosed liabilities, though total liabilities appear understated relative to assets and equity, suggesting partial non-disclosure in the liabilities detail. The company paid no dividend (DPS ¥0), consistent with capital preservation amid losses. Cash and equivalents and investing cash flows are shown as zero due to non-disclosure, limiting cash runway and free cash flow analysis. Overall, the company is exhibiting growth but remains in an investment phase with significant ongoing losses, constrained liquidity, and a need to demonstrate operating leverage and improved cash conversion in the back half.

Profitability Analysis

ROE_decomposition: -25.0% ROE = (-83.9% net margin) x (0.127x asset turnover) x (2.36x equity multiplier). The primary drag is the extremely negative net margin, compounded by low turnover; leverage is moderate and not the core driver of performance. margin_quality: Gross margin at 33.5% (¥584m/¥1,746m) suggests reasonable unit-level profitability; however, operating margin is approximately -78% (¥-1,370m/¥1,746m), reflecting very high operating expenses. Note: reported cost of sales (¥775m) is inconsistent with gross profit (¥584m); we rely on gross profit and the derived gross margin for quality assessment. operating_leverage: Revenue grew 28.4% YoY while operating income remained at ¥-1.37bn (flat YoY), indicating minimal operating leverage to date and suggesting that incremental gross profit is being absorbed by higher fixed costs (SG&A/R&D). EBITDA of ¥-1.283bn underscores limited near-term scalability under the current cost structure.

Growth Assessment

revenue_sustainability: Top-line growth of +28.4% YoY to ¥1,746m appears robust, implying healthy pipeline execution or expanded offerings/geographies. Sustainability will depend on order backlog, retention, and pricing power; these datapoints are not disclosed. profit_quality: Despite higher revenue, the persistent operating loss and negative EBITDA indicate that growth is not translating to earnings. Non-operating items are modest relative to operating losses (interest expense ¥17m), so profit quality hinges on reducing operating costs or lifting gross margin. outlook: To improve profitability in H2, the company must either accelerate gross profit growth above expense growth or execute cost controls. Demonstrable operating leverage (e.g., stable SG&A with rising revenue) and improved OCF conversion will be key. Absent disclosure on backlog and capex, near-term visibility remains limited.

Financial Health

liquidity: Current assets ¥1,392m vs current liabilities ¥1,877m results in a current ratio of 74.1% and negative working capital of ¥-486m, signaling near-term liquidity pressure. Quick ratio at 70.9% corroborates tight liquidity. Cash and equivalents are undisclosed (shown as zero); therefore, cash runway cannot be assessed from the provided data. solvency: Total assets ¥13,802m and equity ¥5,859m imply an equity ratio around 42% and an equity multiplier of 2.36x. Debt-to-equity of 0.37x suggests moderate balance sheet leverage on disclosed liabilities; however, the liabilities total (¥2,194m) appears incomplete versus assets and equity, so true leverage may be higher than shown. capital_structure: Leverage appears manageable from the disclosed metrics, and interest expense is low (¥17m) relative to losses, but ongoing operating deficits necessitate either external financing or rapid cost discipline to avoid balance sheet strain.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.27 (¥-395m / ¥-1,465m), implying non-cash charges and working-capital effects reduce the cash burn relative to accounting losses. Depreciation and amortization of ¥87m contribute to non-cash add-backs. FCF_analysis: Investing cash flow is undisclosed (shown as zero), so free cash flow cannot be reliably calculated. Using OCF alone (¥-395m) suggests negative pre-investment cash generation; actual FCF depends on capex intensity, which is not provided. working_capital: Negative working capital (¥-486m) and a sub-1.0 current ratio indicate potential cash pressure from payables timing and short-term obligations. Inventory is small at ¥60m, implying limited inventory risk; receivables and contract assets are not detailed but likely key to OCF volatility.

Dividend Sustainability

payout_ratio_assessment: No dividend (DPS ¥0, payout ratio 0%) is appropriate given recurring net losses (¥-1,465m). FCF_coverage: FCF coverage is not measurable due to undisclosed investing cash flows. Based on negative OCF, dividends would not be covered by internal cash generation. policy_outlook: Given ongoing losses and liquidity constraints, continuation of a no-dividend policy appears prudent until sustainable profitability and positive FCF are achieved.

Risk Assessment

Business Risks:

• Execution risk in converting revenue growth into operating leverage and profits
• Customer concentration or contract timing risk typical of project/AI/analytics businesses (not disclosed but common to the model)
• Pricing pressure and competitive intensity in data/AI services and platforms
• Talent retention and wage inflation impacting SG&A/R&D
• Productization risk if scaling from services to recurring revenue is a strategic objective

Financial Risks:

• Tight liquidity: current ratio 74.1% and negative working capital of ¥-486m
• Sustained operating and EBITDA losses (EBITDA ¥-1,283m) driving cash burn
• Potential underreporting in liabilities line items, creating uncertainty in true leverage
• Refinancing and funding risk if external capital is required amid losses
• Interest coverage negative (approx. -80x), limiting debt capacity

Key Concerns:

• Lack of operating leverage despite 28.4% revenue growth
• Negative OCF (¥-395m) and undisclosed cash balance limiting visibility on runway
• Inconsistency between reported cost of sales and gross profit; reliance on gross profit for margin analysis
• Incomplete disclosure on investing cash flows and capex, preventing FCF assessment

Investment Implications

Key Takeaways:

• Top-line momentum (+28.4% YoY) but profitability remains deeply negative (operating loss ¥-1.37bn)
• Gross margin of 33.5% is adequate, but SG&A/R&D overwhelms contribution margin
• OCF conversion at 0.27x of net loss indicates some non-cash elements, yet cash burn persists
• Liquidity is tight with current ratio 74.1% and negative working capital
• Balance sheet leverage appears moderate by disclosed metrics, but liabilities disclosure looks incomplete

Metrics to Watch:

• Quarterly SG&A and R&D trend versus revenue to evidence operating leverage
• Order backlog/ARR and churn (if applicable) to assess growth durability
• Operating cash flow and working-capital turns (DSO/DPO) for cash conversion
• Capex and investing cash flows to establish true FCF
• Gross margin trajectory and mix shift between services and recurring revenue

Relative Positioning: Within Japan-listed small/mid-cap data/AI analytics peers, the company shows competitive revenue growth but lags on profitability and cash generation; operating leverage and liquidity management are the primary gaps versus better-scaled, higher recurring-revenue peers.

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