iRidge,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.19B
• Operating Income: ¥-127M
• Net Income: ¥656M
• EPS: ¥84.35

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: Headline net profit was positive in FY2026 Q2 due to sizable non-recurring gains, but core operations remained loss-making with weak cash conversion. Revenue grew 3.9% YoY to 31.87, while operating loss narrowed 23.2% YoY to -1.27. Gross profit was 9.12, implying a gross margin of 28.6%. SG&A of 10.39 exceeded gross profit, resulting in a negative operating margin of -4.0%. Ordinary income was -1.13, but profit before tax surged to 7.94, indicating approximately 9.1 of net extraordinary income. Net income was 6.58 with an effective tax rate of 17.4%. DuPont shows a 21.6% ROE driven by a one-time elevated net margin (20.6%) and moderate leverage (1.71x), despite weak asset turnover (0.610). Operating margin improved by an estimated ~140 bps YoY (from roughly -5.4% to -4.0%) on modest revenue growth and lower operating loss. Cash flow quality is a concern: OCF of 3.04 covers only 46% of net income (OCF/NI = 0.46x), signaling earnings boosted by non-cash or non-recurring items. Liquidity is strong (current ratio 271%), supported by cash of 26.13 versus current liabilities of 14.90. Leverage appears moderate (D/E ~0.71x), but interest coverage is weak given negative EBIT (flag). ROIC is negative at -6.6%, underscoring sub-par capital efficiency despite reported ROE uplift from one-offs. Financing cash outflows (-3.52) suggest net debt repayments or distribution, while capex was minimal (-0.02), limiting capital intensity near term. Intangible assets are sizable (8.99), suggesting ongoing amortization drag and the need for monetization of software/IP. Forward-looking, profitability must transition from extraordinary gains to recurring operating profit and cash generation to sustain returns. Near-term focus should be on SG&A discipline, improving gross margin via mix/pricing, and converting backlog to cash.

Profitability Analysis

ROE decomposition (DuPont): ROE 21.6% = Net Profit Margin 20.6% × Asset Turnover 0.610 × Financial Leverage 1.71x. The largest driver QoQ/YoY is the net profit margin, inflated by non-operating/extraordinary gains despite an operating loss. Asset turnover is modest at 0.610, reflecting a services/IT model with sizable cash/intangibles and relatively low mid-term revenue scale versus assets. Financial leverage at 1.71x (Assets/Equity = 52.26/30.52) provides some amplification but is not excessive. Business reason: Extraordinary income (~9.1) swung ordinary loss (-1.13) to PBT 7.94, inflating net margin and ROE despite weak operations. Sustainability: Low—extraordinary gains are by definition non-recurring; core operating margin is negative and ROIC is -6.6%. Concerning trends: SG&A (10.39) exceeds gross profit (9.12), indicating insufficient scale and operating deleverage; revenue growth (+3.9%) lags the level needed to absorb fixed costs. Operating margin improved by ~140 bps YoY (est.) as operating loss narrowed, but the company must further lift gross profit or optimize SG&A to achieve breakeven.

Growth Assessment

Revenue growth of 3.9% YoY to 31.87 is modest and insufficient to offset cost structure rigidity, evidenced by SG&A higher than gross profit. Operating loss improved 23.2% YoY, indicating incremental operating efficiency or mix improvement, but core profitability remains negative. The profit mix this quarter is heavily skewed to non-recurring items (extraordinary gains ~9.1), which drove PBT 7.94 and NI 6.58; recurring earnings quality remains weak. EBITDA was 0.73 (2.3% margin), signaling limited underlying earnings power before D&A and interest. With intangibles at 8.99, ongoing amortization (part of 2.00 D&A) will continue to pressure operating profit absent stronger gross margin. Outlook hinges on turning pipeline/orders into revenue and improving utilization and pricing; without acceleration in top-line or SG&A containment, sustained operating profitability is uncertain. Near-term growth should prioritize recurring revenue expansion (subscriptions/maintenance) and higher-margin services to lift gross margin. Any additional extraordinary gains would help headline numbers but will not address structural profitability. Monitoring bookings, backlog conversion, and customer churn will be key to assessing sustainability.

Financial Health

Liquidity is strong: Current ratio 271.3% (Current assets 40.41 vs current liabilities 14.90) and cash of 26.13 covers short-term loans of 5.00 comfortably. Quick ratio equals current ratio (271.3%), given minimal inventories reported. Solvency is moderate: Reported D/E 0.71x (Total liabilities 21.74 / Equity 30.52); interest-bearing debt (short 5.00 + long 6.42) is manageable relative to cash. No explicit warning on Current Ratio (<1.0) or D/E (>2.0) applies. However, interest coverage based on EBIT is negative due to operating loss, flagging earnings-pressure risk despite adequate liquidity. Maturity mismatch risk appears low near term: substantial cash and receivables (10.64) exceed current liabilities. Off-balance sheet obligations were not disclosed in the provided data; therefore, contingent liabilities or lease commitments may be understated.

Cash Flow Quality

OCF was 3.04 versus net income of 6.58, yielding OCF/NI of 0.46x, which flags low earnings quality this quarter. The divergence is consistent with NI uplift from extraordinary gains and non-cash items, while core operations remain weak. Free cash flow cannot be fully assessed due to missing investing CF details; capex reported was minimal at -0.02, suggesting low capital intensity in the period. Financing CF of -3.52 likely reflects net debt repayment or other financing outflows; with strong cash balance, liquidity impact is contained. Working capital: accounts receivable 10.64 against revenue of 31.87 implies material credit exposure and potential collection timing sensitivity; OCF suggests some collections but not enough to match headline NI. No overt signs of working capital manipulation are visible from the limited data, but reliance on extraordinary gains to produce net profit is a red flag for recurring cash generation.

Dividend Sustainability

Dividend data are unreported; payout ratios and FCF coverage cannot be calculated. Given retained earnings of 2.34 and negative operating income, a conservative stance on distributions would be prudent until recurring profitability and OCF strengthen. With OCF at 3.04 and capex minimal, there is theoretical capacity for small distributions, but sustainability depends on eliminating operating losses and reducing reliance on non-recurring gains. Policy outlook cannot be inferred without management guidance; monitoring future disclosure on DPS and capital allocation priorities is necessary.

Risk Assessment

Business Risks:

• Reliance on extraordinary gains to achieve profitability, masking weak core operations
• SG&A exceeding gross profit, indicating sub-scale operations and fixed-cost pressure
• Execution risk in scaling recurring revenue and improving gross margin
• Customer concentration and project timing risk typical for IT/services (not disclosed but industry-typical)

Financial Risks:

• Negative interest coverage due to operating losses despite moderate leverage
• Earnings quality risk: OCF/NI at 0.46x indicates low cash conversion
• Intangible asset amortization headwind (D&A 2.00) weighing on operating income
• Potential covenant or refinancing risk if operating losses persist (mitigated by high cash)

Key Concerns:

• ROIC at -6.6% well below cost of capital despite high reported ROE driven by one-offs
• Ordinary income negative (-1.13) versus PBT positive (7.94), implying non-recurring profit dependence
• Sensitivity to macro/IT spending cycles that could slow order intake
• Data gaps (investing CF, SG&A breakdown, dividend policy) limit visibility

Investment Implications

Key Takeaways:

• Core operations remain loss-making; operating margin -4.0% despite 3.9% revenue growth
• Headline ROE 21.6% is not representative of underlying performance due to extraordinary gains
• Cash conversion is weak (OCF/NI 0.46x), highlighting quality concerns
• Liquidity is strong with cash 26.13 and current ratio 271%, providing runway to execute
• ROIC -6.6% signals capital inefficiency; improving unit economics is essential

Metrics to Watch:

• Recurring operating income and EBITDA margin trend (ex-one-offs)
• SG&A-to-sales ratio and gross margin progression
• OCF/NI ratio and receivables days
• ROIC improvement versus 7–8% benchmark
• Extraordinary gains/losses and their recurrence
• Debt service metrics (EBIT/interest) as operations recover

Relative Positioning: Within Japan small-cap IT/services peers, the company shows stronger liquidity but weaker core profitability and cash conversion, with returns flattered by non-recurring items; sustained improvement hinges on scaling recurring revenue and cost discipline.

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