Innovation Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.37B
• Operating Income: ¥-261M
• Net Income: ¥23M
• EPS: ¥-101.72

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

Innovation Inc. (TSE:3970) delivered strong top-line expansion in FY2026 Q2 with revenue of ¥3,369 million, up 30.0% YoY, but profitability deteriorated, resulting in a net loss of ¥269 million and operating loss of ¥261 million. The DuPont ROE metric was -7.16%, driven by a negative net profit margin of -7.98%, moderate asset turnover of 0.423x, and financial leverage of 2.12x. Gross margin was reported at 32.2%, implying gross profit of roughly ¥1,086 million, which, when set against the operating loss, indicates SG&A growth outpaced gross profit growth. There is an internal inconsistency between the reported cost of sales (¥1,505 million) and the reported gross profit and gross margin; the latter two imply cost of sales closer to ¥2,283 million. We anchor our margin discussion on the gross profit and margin provided, while acknowledging the inconsistency. Ordinary loss of ¥327 million suggests roughly ¥66 million of net non-operating costs, with interest expense only ¥1.0 million, pointing to other non-operating items as the driver. Despite the accounting loss, operating cash flow was only -¥33 million, implying sizable working capital inflows or non-cash charges narrowing the cash burn versus EBITDA of -¥228 million. Liquidity appears adequate with a current ratio of 132.8% and working capital of approximately ¥1,228 million. Solvency is acceptable with liabilities of ¥4,254 million versus assets of ¥7,967 million; although the equity ratio is shown as 0.0% (undisclosed), a simple equity/asset computation suggests about 47%. Leverage (debt-to-equity 1.13x using total liabilities as a proxy) is moderate and interest burden is low. Dividend remains suspended (DPS ¥0) given negative earnings and negative OCF, which is prudent from a capital preservation standpoint. Cash and equivalents are shown as 0 (undisclosed), limiting our ability to analyze the cash runway precisely. Share count is undisclosed; back-solving from EPS implies roughly mid-2.6 million shares outstanding, but we treat this as indicative only. Overall, the quarter reflects successful revenue growth but negative operating leverage and weak earnings quality, partially mitigated by manageable cash burn and a solid balance sheet. Sustainability of growth and the trajectory of operating losses are the pivotal items for the next quarters. Data limitations (notably undisclosed cash balance, inventories, share count, and an internal margin inconsistency) warrant caution in interpretation.

Profitability Analysis

ROE_decomposition: -7.16% ROE = (-7.98% net margin) × (0.423x asset turnover) × (2.12x financial leverage). The negative margin is the principal drag; asset turnover is moderate and leverage modestly amplifies losses. margin_quality: Reported gross margin of 32.2% (gross profit ~¥1,086m on revenue ¥3,369m). Operating margin is -7.75% (¥-261m/¥3,369m). Ordinary margin is -9.71%. Net margin is -7.98%. Note: cost of sales (¥1,505m) conflicts with the reported gross profit and margin; we rely on the gross margin and gross profit for analysis. operating_leverage: Revenue grew +30% YoY while operating loss worsened by 19.6% YoY (more negative), indicating negative operating leverage. SG&A growth likely exceeded gross profit growth, and scale benefits have not yet materialized.

Growth Assessment

revenue_sustainability: Top-line growth of +30.0% YoY suggests solid demand and/or successful sales execution. Asset turnover at 0.423x indicates modest efficiency for the asset base; sustaining growth will require continued customer acquisition and retention without overstretching SG&A. profit_quality: Ordinary loss exceeds operating loss by ~¥66m due to non-operating items (interest is only ~¥1.0m), complicating the path to breakeven. EBITDA of -¥228m and operating loss of -¥261m reflect heavy operating cost intensity despite growth. outlook: Near-term outlook hinges on improving unit economics and cost discipline. If gross margin in the low-30% range persists, the company needs to moderate SG&A growth to move toward operating breakeven. Monitoring sequential trends in operating loss versus revenue will be key.

Financial Health

liquidity: Current ratio 132.8% and working capital ~¥1,227.6m indicate adequate short-term coverage. Quick ratio matches the current ratio because inventories are undisclosed (shown as 0). Cash balance is undisclosed, limiting visibility on runway. solvency: Total liabilities ¥4,254.5m vs total assets ¥7,967.0m; implied equity ratio ~47% (despite a reported 0.0% which reflects non-disclosure). Debt-to-equity (using total liabilities) is 1.13x, indicating moderate leverage. Interest expense is low (¥1.0m), so financial burden from interest is minimal. capital_structure: Leverage primarily arises from non-interest-bearing or low-cost liabilities given minimal interest. Ordinary loss suggests some non-operating costs beyond interest; clarity on their nature would refine risk assessment.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.12, meaning cash losses are materially smaller than accounting losses, supported by working capital inflows and non-cash charges (D&A ¥32.8m). However, EBITDA is -¥228.2m, underscoring weak core cash earnings. FCF_analysis: Investing CF is undisclosed (shown as 0), so we cannot compute true FCF. Given OCF of -¥33.3m, absent asset sales or unusually low capex, underlying FCF is likely negative. working_capital: The large gap between EBITDA (-¥228m) and OCF (-¥33m) implies a significant release of working capital (e.g., receivables collection or increased payables/deferred revenue). Sustainability of this working capital support is uncertain.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 and payout ratio is 0.0%, appropriate given negative net income (-¥269m). FCF_coverage: With OCF negative and investing CF undisclosed, FCF coverage of dividends cannot be established; operationally, a dividend would not be covered. policy_outlook: Given losses and negative OCF, maintaining a conservative stance (no dividend) is sensible until operating breakeven and consistent positive OCF are achieved.

Risk Assessment

Business Risks:

• Execution risk in converting strong revenue growth into sustainable profitability (negative operating leverage).
• Potential volatility in customer demand and sales cycle length affecting revenue visibility.
• Pricing pressure or mix shifts that could compress gross margin near the low-30% level.
• Dependence on continued marketing and sales spend to sustain growth, risking efficiency deterioration.

Financial Risks:

• Negative EBITDA and operating loss despite growth, implying reliance on working capital timing to limit cash burn.
• Undisclosed cash position, creating uncertainty around liquidity runway.
• Moderate leverage (total liabilities/equity 1.13x); while interest is low, refinancing or covenant risks could emerge if losses persist.
• Non-operating losses beyond interest (ordinary loss < operating loss) indicate exposure to other financial items.

Key Concerns:

• Inconsistency between reported cost of sales and gross profit/margin, which clouds margin analysis.
• Sustainability of working capital inflows that narrowed OCF losses this quarter.
• Path and timeline to operating breakeven given rising losses alongside 30% revenue growth.

Investment Implications

Key Takeaways:

• Strong revenue growth (+30% YoY) but worsening operating and net losses.
• Gross margin around 32% implies heavy SG&A burden; scale benefits not yet visible.
• OCF (-¥33m) much better than EBITDA (-¥228m) due to working capital tailwinds; durability uncertain.
• Balance sheet appears sound with implied ~47% equity ratio and low interest burden.
• Data gaps (cash, inventories, share count) and an internal margin inconsistency require cautious interpretation.

Metrics to Watch:

• Operating margin and EBITDA trend versus revenue growth (evidence of operating leverage).
• Gross margin consistency and reconciliation of cost of sales disclosures.
• Operating cash flow and working capital movements (AR days, AP days, deferred revenue).
• Equity ratio and leverage (liabilities/equity) trajectory.
• Non-operating income/expense items driving the gap between operating and ordinary income.

Relative Positioning: Relative to small-cap Japan peers in growth phases, Innovation exhibits above-average revenue growth but below-average profitability and cash earnings, offset by a comparatively solid balance sheet and low interest burden.

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