G-NEXT Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥351M
• Operating Income: ¥-71M
• Net Income: ¥-72M
• Earnings per Unit (EPU): ¥-13.35

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: FY2026 Q2 shows solid topline traction (+38% YoY revenue) but continued operating losses and reliance on external financing, with leverage elevated and interest coverage deeply negative. Revenue reached 3.51, while gross profit was 0.72, implying a gross margin of 20.5% on the reported figures. Operating income was -0.71, translating to an operating margin of about -20%, and ordinary income was -0.72, indicating losses remain concentrated at the operating level rather than non-operating items. Net income was -0.72 (EPS -13.35 JPY), with no tax burden recorded. On costs, SG&A of 1.72 exceeded gross profit materially, producing a negative operating leverage effect. We cannot quantify YoY margin expansion/compression in basis points due to lack of prior-period margin disclosure; based on current data, profitability pressure persists. Earnings quality is mixed: OCF/NI is 1.70x, which would ordinarily indicate reasonable conversion, but both OCF (-1.23) and NI (-0.72) are negative, meaning the business remains cash-burning. Liquidity is adequate near term (current ratio 204%, cash 4.18 vs current liabilities 2.55), but solvency risk exists given high D/E of 3.76x and interest coverage of -44.6x. Balance sheet shows accumulated deficits (retained earnings -14.50) and low equity (total equity 0.96), leaving limited buffer against further losses. Financing cash inflow of 1.98 suggests continued dependence on external funding (likely new debt/equity) to support operations. Asset efficiency remains low (asset turnover 0.867), and leverage (4.22x in DuPont) amplifies the negative margin into a sharply negative ROE (-75%). Working capital appears sufficient, with significant cash relative to near-term obligations; however, debt service capacity from earnings is poor. The apparent discrepancy of current assets exceeding total assets indicates disclosure/aggregation constraints and limits precision of ratio analysis, but the directional conclusions are robust. Near-term outlook hinges on executing gross margin expansion and SG&A discipline to approach break-even while managing financing needs. Absent rapid margin improvement, further equity dilution or refinancing appears likely.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-20.5%) × 0.867 × 4.22 ≈ -75.0%. The largest driver of the negative ROE is the negative net profit margin; leverage magnifies the loss, while asset turnover is modest. Business drivers: gross margin at 20.5% combined with SG&A of 1.72 against gross profit of 0.72 indicates that operating expenses exceed gross profit by 1.43, leading to an operating margin of roughly -20%. This likely reflects continued upfront investments in sales, product, and corporate functions exceeding current scale. Sustainability: without structural gross margin expansion and SG&A containment, the current negative margin is not sustainable; however, if revenue continues to grow at high double digits and fixed-cost absorption improves, operating leverage could turn positive over the next several quarters. Notable trends: SG&A/revenue is ~49%, and gross profit/revenue is ~20.5%; since SG&A outstrips gross profit, near-term profitability will remain constrained. We cannot compare YoY SG&A versus revenue growth due to missing prior-period SG&A data, but the current cost structure indicates that costs are not yet aligned with scale.

Growth Assessment

Revenue grew 38.0% YoY to 3.51, confirming demand traction. Gross profit of 0.72 implies limited monetization at current scale given the 20.5% gross margin. Operating loss (-0.71) suggests negative operating leverage persists. Non-operating items were minor (income 0.01, expenses 0.15), so core operations drive the result. Sustainability: the growth rate is encouraging, but profit quality is weak as growth is not yet translating into margin improvement. Outlook: focus should be on gross margin expansion (pricing, mix, cost of delivery) and SG&A efficiency (sales productivity, operating leverage). If revenue maintains elevated growth while SG&A grows slower than revenue, break-even could be achievable; if growth slows, losses may widen given the fixed-cost base. Data limitations (no segment or cohort data) prevent deeper assessment of recurring vs one-off revenue.

Financial Health

Liquidity is adequate: current ratio 204% and cash 4.18 versus current liabilities 2.55 support near-term obligations. Solvency is strained: D/E at 3.76x exceeds the 2.0 warning threshold (explicit warning), and interest coverage is -44.57x, indicating no earnings-based capacity to service interest. Capital structure shows long-term loans of 1.03 within noncurrent liabilities of 1.06; maturity profile appears weighted to the long term, reducing immediate refinancing pressure but increasing medium-term rollover risk given losses. Maturity mismatch: with cash at 4.18 and current liabilities at 2.55, short-term coverage is comfortable; however, ongoing cash burn raises future liquidity needs. Equity is thin (total equity 0.96; retained earnings -14.50), leaving limited shock absorption capacity. We note an apparent presentation inconsistency (current assets 5.20 vs total assets 4.05), which constrains exact ratio precision; conclusions use the reported individual line items with caution. No off-balance sheet obligations were disclosed.

Cash Flow Quality

OCF was -1.23 vs NI of -0.72, yielding OCF/NI of 1.70x; while above the 0.8 threshold, both figures are negative, so the ratio is not indicative of strong earnings quality—cash is still being consumed by operations. Financing CF of +1.98 funded the operating shortfall, highlighting reliance on external funding. Investing CF and capex were unreported; depreciation is reported as 0.00, suggesting low capital intensity, but we cannot confirm FCF. Working capital: without receivable/inventory details, we cannot diagnose specific working capital swings; however, the gap between OCF and NI suggests higher cash burn than accounting loss, potentially from growth investments in working capital or timing effects. Dividend and buyback cash outflows were unreported; given losses and negative OCF, distributions are unlikely.

Dividend Sustainability

No dividends were reported, and payout ratios are not calculable. Given negative net income and negative operating cash flow, any cash distributions would be unsustainable from internal cash generation. With high leverage (D/E 3.76x) and thin equity, preserving liquidity and deleveraging should take priority over shareholder returns. Policy outlook: we assume a de facto suspension/absence of dividends until profitability and positive OCF are achieved and financing dependence abates.

Risk Assessment

Business Risks:

• Profitability risk: gross margin of 20.5% and SG&A exceeding gross profit lead to sustained operating losses.
• Execution risk: need to scale revenue while improving unit economics and cost discipline to reach break-even.
• Customer/revenue concentration and churn risk typical of early-stage software/service models (not disclosed but plausible).
• Competitive intensity risk in digital/IT solutions potentially pressuring pricing and margins.

Financial Risks:

• High leverage: D/E 3.76x (above 2.0 threshold).
• Debt service capacity: interest coverage -44.57x indicates inability to service interest from earnings.
• Refinancing/dilution risk: continued negative OCF (-1.23) necessitates external financing (FCF unreported).
• Thin equity buffer: total equity 0.96 with retained losses -14.50 elevates solvency risk.

Key Concerns:

• Sustained operating losses with negative operating margin (~-20%).
• Reliance on financing CF (+1.98) to fund operations.
• Data/reporting constraints (e.g., current assets exceeding total assets) limiting analytical precision.
• Potential impairment risk on intangibles/goodwill (0.09/0.07) if growth underperforms.

Investment Implications

Key Takeaways:

• Topline growth is strong (+38% YoY), but margins remain deeply negative and operating losses persist.
• Near-term liquidity is sufficient (cash 4.18; current ratio 204%), but solvency is stressed (D/E 3.76x, interest coverage negative).
• External funding bridged the cash burn this period; absent improved economics, further financing is likely.
• Path to break-even hinges on gross margin expansion and SG&A discipline to unlock operating leverage.

Metrics to Watch:

• Gross margin trend (20.5% currently) and cost of sales efficiency.
• SG&A growth versus revenue growth; SG&A/revenue currently ~49%.
• Operating margin progression toward break-even.
• OCF trajectory and cash runway (cash 4.18 vs recent OCF burn of 1.23 over six months ≈ ~20 months runway, all else equal).
• Leverage metrics (D/E, interest coverage) and financing activity (equity issuance/debt rollovers).

Relative Positioning: Within small-cap Japanese tech/service peers, the company exhibits above-average revenue growth but weaker profitability and higher leverage, placing it behind peers that have already achieved break-even or maintain lower debt dependence.

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