iRidge,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.19B
• Operating Income: ¥-127M
• Net Income: ¥32M
• 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

Irridge Co., Ltd. (3917) reported FY2026 Q2 consolidated results under JGAAP with modest top-line growth but continued pressure at the operating level and substantial distortion in bottom-line profitability due to non-recurring items. Revenue rose 3.9% year over year to ¥3,187 million, while gross profit reached ¥985.5 million, implying a gross margin of 30.9%. Despite the gross margin, the company recorded an operating loss of ¥127 million (operating margin of approximately -4.0%), though this represents a 23.2% year-over-year improvement in operating income (loss narrowed). Ordinary income was also negative at ¥113 million, indicating limited contribution from non-operating items to offset core losses. Conversely, net income surged to ¥658 million, producing a net profit margin of 20.65%, which is inconsistent with the operating and ordinary losses and therefore points to material extraordinary gains or tax-related effects. EPS was reported at ¥84.35, but outstanding shares were not disclosed in the provided feed, limiting per-share cross-checks. The DuPont bridge shows ROE of 21.56% (net margin 20.65%, asset turnover 0.610x, leverage 1.71x), but this ROE is clearly inflated by non-recurring profits and does not represent underlying earning power. Cash flow from operations was negative at -¥257 million, yielding an OCF/Net Income ratio of -0.39, which flags weak earnings quality versus cash generation in the period. Liquidity appears adequate with a current ratio of 175%, supported by ¥4,555 million in current assets against ¥2,601 million in current liabilities and no reported inventories, but the absolute cash balance was not disclosed in the XBRL snapshot here. Total assets were ¥5,226 million and total equity ¥3,052 million, implying an equity ratio of roughly 58%, despite the reporting line for equity ratio showing 0.0% (unreported). Interest expense was modest at ¥4.1 million, but interest coverage was negative due to operating losses, reflecting limited buffer until sustainable operating profits materialize. The company reported no dividends (DPS ¥0.00) and a payout ratio of 0%, which is consistent with the ongoing operating loss and negative operating cash flow. Working capital stood at approximately ¥1,955 million, indicating a comfortable short-term funding position, though working capital movements likely contributed to the OCF shortfall. Investing cash flow and cash and equivalents were not disclosed in this dataset, constraining full free cash flow analysis. Overall, the quarter shows modest revenue growth, improved but still negative operating profitability, and a bottom line boosted by non-recurring items, leading to a disconnect between reported ROE and core cash-generating capability.

Profitability Analysis

ROE is reported at 21.56% via DuPont: net margin 20.65%, asset turnover 0.610x, and financial leverage 1.71x. This ROE is not reflective of core performance because operating and ordinary losses indicate underlying profitability remains negative; net margin was elevated by extraordinary gains. Gross margin of 30.9% suggests acceptable unit economics but insufficient scale or cost structure rigidity led to an operating margin of approximately -4.0%. EBITDA was ¥27 million (0.8% margin), indicating near break-even before depreciation/amortization but still insufficient to cover SG&A and other fixed costs. Operating leverage is visible: with revenue +3.9% YoY and operating loss narrowing by 23.2% YoY, incremental margin improved, but not yet enough to reach break-even. Interest expense was ¥4.1 million with negative EBIT, resulting in negative interest coverage (-30.7x as provided), underscoring the need to restore operating profitability to ensure adequate fixed-charge coverage. Ordinary income remained negative (¥-113 million), evidencing minimal help from non-operating items (e.g., financial income) in the quarter. Effective tax rate appears distorted (0.0% shown) due to the profit mix and extraordinary items; do not extrapolate tax rate from this period. Overall margin quality is weak at the operating level, with EBITDA close to zero and profit entirely dependent on non-recurring gains.

Growth Assessment

Revenue grew 3.9% YoY to ¥3,187 million, suggesting steady but not rapid growth. The improvement in operating loss (+23.2% YoY) indicates some operating leverage, but the business has not crossed the profitability threshold. Gross margin at 30.9% is stable enough to support a path to profitability if SG&A efficiencies and utilization improve. However, the quality of profit this quarter is low, as net income (¥658 million) diverges sharply from operating and ordinary results, implying reliance on one-off gains rather than sustainable earnings. Without disclosure of the extraordinary item details, sustainability of the net profit is unclear. Revenue resilience appears reasonable given the mild growth, but backlog/recurring revenue mix and churn are not provided, limiting visibility into future quarters. Outlook hinges on cost control and scaling higher-margin services to convert gross profit into positive EBITDA and operating income. With EBITDA margin at 0.8%, even modest revenue growth and incremental margin expansion could flip operating income positive if fixed costs are contained. Absent evidence of recurring, high-margin revenue expansion, near-term growth in profits remains uncertain despite the topline increase.

Financial Health

Total assets: ¥5,226 million; total equity: ¥3,052 million; implied equity ratio ~58% (despite 0.0% shown, which is unreported). Total liabilities: ¥3,388 million, yielding a liabilities-to-equity ratio of ~1.11x as provided for debt-to-equity, though the mix of interest-bearing vs. operating liabilities is not detailed here. Current assets: ¥4,555 million; current liabilities: ¥2,601 million; current ratio ~175% and quick ratio ~175% given no inventories reported, indicating solid short-term liquidity. Working capital is approximately ¥1,955 million, providing a cushion to absorb operating volatility. Interest expense is modest at ¥4.1 million, but negative operating income creates weak fixed-charge coverage until profitability normalizes. Cash and equivalents were not disclosed in this dataset, limiting assessment of immediate liquidity buffers and cash runway. Overall solvency appears sound given the equity base and implied equity ratio, but cash flow performance must improve to avoid erosion of liquidity.

Cash Flow Quality

Operating cash flow was -¥257 million versus net income of ¥658 million, producing an OCF/Net Income ratio of -0.39, which indicates poor earnings quality for the period and likely sizable working capital outflows and/or non-cash gains. EBITDA of ¥27 million versus operating loss of ¥127 million suggests heavy non-cash D&A (¥154 million) but still near break-even cash earnings before working capital. Investing cash flow and capital expenditures were not disclosed here (shown as 0, i.e., unreported), so free cash flow cannot be reliably computed despite the summary line indicating FCF 0. Financing cash flow was +¥65 million, implying reliance on minor external funding or lease/other financing to support operations. The disconnect between positive net income and negative OCF likely stems from extraordinary, non-cash items or the timing of receivables/payables. Working capital management will be a key lever; with current assets materially exceeding current liabilities, collections and billing discipline may unlock cash if receivables are elevated.

Dividend Sustainability

The company reported no dividends (DPS ¥0.00) and a payout ratio of 0%. Given negative operating income and negative operating cash flow, withholding dividends is consistent with preserving liquidity for operations and investment. Free cash flow coverage cannot be evaluated due to unreported investing cash flows; the provided FCF value of 0 should be treated as unreported rather than an actual zero. Policy-wise, resumption or initiation of dividends would likely require sustained positive operating income, positive OCF, and clearer visibility on recurring profitability. Until operating cash generation improves, dividend capacity remains constrained despite the one-off boost to net income this period.

Risk Assessment

Business Risks:

• Reliance on non-recurring gains to deliver net profit despite operating loss
• Execution risk in scaling revenue to reach sustainable operating profitability
• Potential pricing pressure and wage inflation impacting gross and operating margins
• Project timing and backlog conversion risk affecting quarterly volatility
• Client concentration risk (not disclosed here, but common in solution/IT services models)
• Talent retention and hiring in a competitive tech labor market

Financial Risks:

• Negative operating cash flow despite reported net profit
• Weak interest coverage due to negative EBIT
• Working capital outflows and receivables collection risk
• Uncertainty around cash balance and investing needs (cash and capex not disclosed)
• Potential reversals of extraordinary gains leading to earnings volatility

Key Concerns:

• Quality of earnings is low; net income driven by non-operating/extraordinary items
• Operating profitability remains negative even as revenue grows
• Limited transparency from unreported cash, investing, and share data constrains analysis

Investment Implications

Key Takeaways:

• Top-line grew 3.9% YoY to ¥3,187 million, but operating income remained negative at ¥-127 million (margin ~-4.0%).
• Net income of ¥658 million and ROE of 21.56% are non-representative due to extraordinary items.
• Gross margin of 30.9% and EBITDA margin of 0.8% indicate near break-even cash earnings before working capital.
• OCF was -¥257 million (OCF/NI -0.39), highlighting weak cash conversion and earnings quality.
• Liquidity is adequate (current ratio ~175%, working capital ~¥1,955 million) with an implied equity ratio ~58%.
• Interest expense is low, but interest coverage is negative; sustainable operating profits are needed.

Metrics to Watch:

• EBITDA margin progression toward sustained positive mid-single digits
• Operating cash flow and receivables days to assess cash conversion
• Breakdown of extraordinary gains and their recurrence
• Backlog/recurring revenue mix and quarterly book-to-bill (if disclosed)
• SG&A ratio and headcount productivity for operating leverage
• Interest-bearing debt levels and cash balance disclosure

Relative Positioning: Within Japanese small-cap digital/IT solution peers, Irridge shows modest revenue growth but lags on operating profitability and cash conversion, with headline ROE temporarily flattered by non-recurring items; balance sheet appears sound, offering time to execute margin improvement.

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