Kokopelli (4167) FY2026 Q3 Earnings Report

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Executive Summary

During the quarter, the combination of declining revenue and higher SG&A expenses caused the Company to fall sharply from an operating profit in the same period of the previous year to a substantial operating loss. Revenue was ¥13.1B (¥15.5B in the previous year, YoY -15.8%), Operating Income was ¥-4.0B (¥1.6B in the previous year, YoY -360.0%), Ordinary Income was ¥-4.0B (¥1.6B in the previous year, YoY -357.7%), and Net Income was ¥-3.0B (¥0.9B in the previous year, YoY -426.9%). SG&A expenses increased at a rate exceeding the decline in revenue, amplifying the fixed-cost burden and significantly deteriorating profitability.

Factors Affecting Business Performance

【Revenue】Revenue was ¥13.1B, down 15.8% year on year. Although business-by-business details are not disclosed because the Company has a single segment (Business Platform Business), progress against the full-year plan of ¥20.1B was only 65.0%, below the standard 75% level.

【Profit and Loss】Gross profit was ¥5.4B (gross margin 41.1%), down 15.1pt from 56.2% in the same period of the previous year. SG&A expenses were ¥9.4B, an increase of 31.2% year on year, and the SG&A ratio rose from 46.2% to 72.0%. As a result, Operating Income fell from a profit of ¥1.6B in the same period of the previous year to a loss of ¥4.0B, while the operating margin deteriorated from 10.0% to -30.9%. Ordinary Income and Profit Before Tax also recorded losses at approximately the same level, and the effect of recording extraordinary income of ¥0.03B was limited. This represents a typical decline in both revenue and earnings, driven by the combination of lower revenue, a declining gross margin, and higher SG&A expenses.

Segment Analysis

The Group operates as a single segment consisting solely of the Business Platform Business, and does not disclose segment-level revenue or profit and loss information.

Key Financial Indicators

【Profitability】The operating margin was -30.9% (10.0% in the same period of the previous year), and the net profit margin was -22.7% (5.9% in the same period of the previous year), with both deteriorating substantially. Annualized ROE was -24.3% and annualized ROIC was -52.3%, indicating impairment in the ability to generate returns on both invested capital and equity.【Cash Flow Quality】Although Operating Cash Flow and other cash flow data are not disclosed, cash and deposits declined 50.2% from ¥13.9B in the same period of the previous year to ¥6.9B, representing a decline in cash exceeding the current-period net loss of ¥2.97B.【Investment Efficiency】The annualized total asset turnover ratio was 0.876x, while intangible fixed assets of ¥7.2B (36.2% of total assets) structurally weigh on asset efficiency.【Financial Soundness】The Equity Ratio remained high at 81.9%, the current ratio was 395.0%, and interest-bearing debt was limited to ¥0.9B. However, interest coverage was negative due to the operating loss. Although the financial structure is conservative, the decline in core business earnings remains a challenge.

Cash Flow Analysis

Because Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow in the cash flow statement are not included in the disclosed data, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥6.99B, from ¥13.9B in the same period of the previous year to ¥6.9B, with the decline exceeding the current-period net loss of ¥2.97B. Software increased from ¥1.7B to ¥4.5B, while software under construction decreased from ¥2.6B to ¥0.8B, suggesting that investment expenditures associated with the completion of development projects and transfers to completed software were one factor behind the decline in cash. Accounts payable also decreased from ¥0.6B to ¥0.4B, indicating that cash use on the payment side also contributed to the reduction in cash balances. Cash and deposits were approximately 2.8x current liabilities, indicating some short-term liquidity headroom; however, the pace of cash consumption amid continued losses will require monitoring.

Quality of Earnings

The Ordinary Loss was almost entirely attributable to the operating loss, while both non-operating income and expenses were insignificant and the impact of temporary factors was limited. Extraordinary income of ¥0.03B (related to fixed assets, etc.) was recorded, but its effect in improving the Profit Before Tax loss of ¥-4.0B was limited. Almost no income taxes were recorded, while deferred tax assets increased from ¥0.6B in the same period of the previous year to ¥1.6B, reflecting recognition based on an assumption of future taxable income. The central cause of the loss was the structural factor of SG&A expenses increasing more than revenue declined. As this indicates deterioration in the earnings structure itself rather than a one-time event, the quality of earnings is assessed to have declined.

Earnings Forecast and Guidance

The full-year Company plan calls for Revenue of ¥20.1B (+0.1% year on year), an Operating Loss of ¥4.5B, an Ordinary Loss of ¥0.5B, a Net Loss of ¥0.7B, and EPS of -¥9.25. The Q3 year-to-date revenue progress rate was 65.0%, below the standard 75%, requiring approximately ¥6.9B in revenue to be recorded in Q4. Meanwhile, the cumulative Q3 Operating Loss had reached ¥4.0B, representing 89.6% progress against the full-year plan of ¥4.5B, requiring the Q4 loss to be contained within ¥0.5B. The cumulative Q3 Net Loss was also ¥2.97B, substantially exceeding the full-year plan of ¥0.7B. Achieving the plan will require a recovery in revenue and rapid improvement in profit and loss.

Shareholder Returns

The Q2 dividend was ¥0 per share, with no dividend paid, and the full-year dividend forecast is also ¥0. Given the current-period net loss of ¥2.97B, calculating the Payout Ratio is not substantively meaningful. The no-dividend policy is limiting cash outflows amid losses.

Risk Factors

1. Profitability deterioration risk: While Revenue decreased 15.8% year on year, SG&A expenses increased 31.2%, and the operating margin deteriorated by 4,090bp from 10.0% to -30.9%. If revenue recovery is delayed, losses may continue or expand due to the fixed-cost burden.

2. Gross margin decline risk: The gross profit margin declined by 15.1pt from 56.2% to 41.1%. This is believed to reflect changes in the mix of projects and increases in development and implementation costs, making a recovery in the gross margin a prerequisite for restoring profitability.

3. Recoverability of intangible assets: Intangible fixed assets account for 36.2% of total assets (software of ¥4.5B and goodwill of ¥1.9B). If revenue and earnings plans fall short, amortization expenses and impairment losses may weigh on business performance.

Industry Benchmark (Reference; Compiled by the Company)

Key Points in the Financial Results

1. Operating Income sharply reversed from a profit of ¥1.6B in the same period of the previous year to a loss of ¥4.0B, and the operating margin deteriorated by 4,090bp. This rapid change in profitability is the most significant point of focus in the financial results.

2. Although the financial structure is conservative, with an Equity Ratio of 81.9% and a current ratio of 395.0%, cash and deposits decreased 50.2% year on year. The pace of cash consumption amid continued losses will be a key area for monitoring.

3. Against the full-year plan, the revenue progress rate was 65.0%, while the Operating Loss progress rate reached 89.6%. Improvement in earnings in Q4 will therefore be the decisive factor in achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥131–¥138 at a ±1% cost of equity, and ¥132–¥136 at ω±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• Because 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 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. 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, where necessary, after consulting with a professional.

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