Geolocation Technology (4018) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative results for Q2 FY2026 were characterized by the deterioration in profitability, with the core business falling into the red despite revenue growth. Revenue was ¥0.35B (¥0.34B in the previous year, YoY +5.6%), Operating Income was ¥-0.02B (¥0.02B in the previous year, YoY -34.6%), Ordinary Income was ¥-0.02B (¥0.02B in the previous year, YoY -34.5%), and Net Income was ¥-0.02B (¥0.02B in the previous year, YoY -39.9%), with all measures turning from profit to loss. The primary factor was a 23.0% year-on-year increase in SG&A expenses, exceeding revenue growth, while the decline in the gross margin (60.6%, approximately 64.3% in the previous year) also contributed to the deterioration in profitability.

Factors Affecting Results

【Revenue】Revenue was ¥0.35B, representing a 5.6% increase year on year. The single segment, the IPGeolocation Business, accounted for the entire ¥0.35B of revenue and secured revenue growth, although the growth rate was limited.

【Profit and Loss】Gross profit was ¥0.21B, remaining approximately at the same level as in the same period of the previous year, while the gross margin declined to 60.6%. Meanwhile, SG&A expenses increased 23.0% year on year to ¥0.23B, causing the SG&A ratio to rise to 65.9%. As a result, Operating Income was ¥-0.02B (Operating Margin of -5.1%), representing a shift into the red from Operating Income of ¥0.02B in the same period of the previous year (margin of approximately 7.5%). Ordinary Income and Net Income likewise turned negative. The impact of non-operating and extraordinary gains and losses was limited, indicating that the deterioration in the profitability of the core business was the primary cause of the worsening profit and loss. Overall, the results can be characterized as revenue growth accompanied by declining earnings, or more specifically, a shift into an operating loss despite revenue growth.

Segment Analysis

The Company has a single segment, the IPGeolocation Business, which recorded revenue of ¥0.35B and Operating Income of ¥-0.02B (margin of -5.3%). As the Company has a single-business structure, comparisons of increases and decreases between segments cannot be made; however, the deterioration in the profitability of the overall business is directly reflected in segment profit and loss.

Key Financial Indicators

【Profitability】The Operating Margin deteriorated from the profitable level recorded in the same period of the previous year to -5.1%, while the Net Profit Margin was -5.4%. The EBITDA Margin was also negative at -4.5%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-0.03B, representing an outflow of funds exceeding the Net Loss of ¥-0.02B. Although the accrual ratio was low at 1.8%, the increase in accounts receivable (+30.7%) and the decrease in advances received constrained cash generation from a working-capital perspective. 【Investment Efficiency】Annualized ROE was -6.7%, with the shift of the Net Profit Margin into negative territory being the primary cause of the deterioration in ROE. The total asset turnover ratio of 0.92x and financial leverage of 1.36x remained relatively stable. 【Financial Soundness】The Equity Ratio was 73.8%, the current ratio was equivalent to 361.6%, and the debt-to-equity ratio was 0.36x, indicating that the Company maintained a conservative financial structure in all respects.

Cash Flow Analysis

Operating CF was ¥-0.03B, investing CF was ¥-0.01B, and financing CF was ¥-0.02B, resulting in free cash flow of ¥-0.04B. Although OCF improved from ¥-0.05B in the same period of the previous year, the continued outflow of funds at the operating level remains unchanged. Within OCF, the increase in accounts receivable amounted to ¥-0.02B, while the decrease in advances received was also a source of cash outflow. This was partially offset by increases in accounts payable and other items. Investing CF included the acquisition of intangible fixed assets such as software, resulting in an investment scale exceeding depreciation and amortization. Financing CF primarily consisted of dividend payments. Cash and cash equivalents decreased by ¥0.05B during the period, but the period-end balance of ¥0.57B remains sufficient to cover near-term funding requirements.

Quality of Earnings

The deterioration in profit and loss during the period was not attributable to extraordinary gains and losses, but rather to recurring factors arising from changes in the structure of cost of sales and SG&A expenses in the core business. Both non-operating income and expenses were small, in the ¥0.00B range, and the divergence among Ordinary Income, Net Income, and profit before tax was limited. The impact of income taxes was also small. Meanwhile, although the accrual ratio was low at 1.8%, the fact that OCF represented an outflow exceeding the Net Loss indicates that changes in working capital—such as the increase in accounts receivable and decrease in advances received—created a gap between earnings and cash generation. Overall, the loss for the period should be viewed not as the result of a temporary special factor, but as a structural profitability issue caused by expenses increasing faster than revenue.

Earnings Forecast and Guidance

The full-year forecasts are revenue of ¥0.73B (YoY +6.6%), Operating Income of ¥-0.08B, Ordinary Income of ¥-0.07B, and Net Income of ¥-0.05B. First-half revenue of ¥0.35B represents a progress rate of 48.4% against the full-year forecast and is broadly within the range of seasonality. Meanwhile, the first-half Operating Loss of ¥0.02B represents only 22.8% of the full-year forecast Operating Loss of ¥0.08B, indicating that the Company’s plan assumes an expansion of the Operating Loss by approximately ¥0.06B in the second half. With respect to net profit and loss, the first-half result was ¥-0.02B against the full-year forecast of ¥-0.05B, likewise indicating a plan predicated on recording an additional loss in the second half. This progress indicates that achievement of the full-year plan is based not on improved profitability in the second half, but on the continuation of front-loaded expenses.

Shareholder Returns

The dividend payable at the end of Q2 was ¥0, while the full-year forecast dividend per share is ¥10. Based on 1,588 thousand issued shares, the planned full-year dividend amount is approximately ¥0.016B. Given the forecast full-year Net Loss of ¥0.05B, the Payout Ratio has no meaningful interpretation, and the dividend for the period is not supported by earnings. Both first-half OCF and free cash flow were negative, while financing CF included dividend payments of ¥0.02B. Although the dividend is supported by the high level of cash and deposits of ¥0.57B, no share repurchases were identified, and discussion in terms of the Total Return Ratio is not applicable. If negative FCF continues, the dividend funding structure is expected to remain dependent on decreases in retained earnings and cash.

Risk Factors

1. Profitability Deterioration Risk: While revenue increased 5.6% year on year, the gross margin declined to 60.6% and SG&A expenses increased 23.0%. The deterioration of the Operating Margin to -5.1% could delay the timing of a return to profitability if expenses continue to increase faster than revenue.

2. Working Capital and Cash Flow Risk: Accounts receivable increased 30.7% year on year, expanding at a pace exceeding revenue growth. Together with the decrease in advances received, this resulted in OCF of ¥-0.03B, an outflow of funds exceeding the Net Loss, necessitating continued monitoring of collection conditions.

3. Dividend and Earnings Mismatch Risk: Despite forecasting a full-year Net Loss of ¥0.05B, the Company plans to pay a full-year dividend of ¥10 per share, which cannot be covered by current-period earnings. Continuation of the dividend depends on the liquidity provided by cash and deposits of ¥0.57B, and if negative FCF continues, the funding base may continue to diminish.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

No industry median data is available for the profitability indicators; only the fact that the absolute levels are negative can be confirmed.

Growth and Capital Efficiency

No median data is available for growth either, so the Company’s revenue growth rate of 5.6% cannot be assessed on a relative basis.

※Source: Compiled by the Company

Key Points of the Financial Results

1. The central feature of these financial results was the deterioration of the Operating Margin to -5.1% and the shift from profit to loss compared with the same period of the previous year, despite revenue growth, due to the decline in the gross margin and increase in SG&A expenses.

2. The full-year plan anticipates a greater expansion of losses in the second half than in the first half, and the first-half progress is structured without assuming improved profitability in the second half.

3. The conservative financial structure—an Equity Ratio of 73.8%, a current ratio equivalent to 361.6%, and a debt-to-equity ratio of 0.36x—supports resilience against near-term losses and dividend payments.

Theoretical Share Price (Reference Value)

Sensitivity: ¥186–¥196 at a ±1% change in the cost of equity, and ¥186–¥193 at a change of ±0.1 in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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