AI,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥810M
• Operating Income: ¥-37M
• Net Income: ¥5M
• EPS: ¥1.09

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

Verdict: Aii Inc. (4388) delivered strong top-line growth in FY2026 Q2 but remained loss-making at the operating level, with bottom-line profit supported by non-recurring factors. Revenue rose 21.1% YoY to 8.10, highlighting healthy demand recovery or successful commercialization efforts. Gross profit was 4.11, implying a gross margin of 50.7%, which is solid for a software/AI model business. SG&A reached 4.49, exceeding gross profit and driving an operating loss of -0.37 (operating margin -4.6%). On a YoY basis, operating income improved from roughly -0.45 to -0.37, and the operating margin narrowed from an estimated -6.7% to -4.6%, an improvement of about 210 basis points. Ordinary income deteriorated to -0.42 (-42.4% YoY), indicating weaker core non-operating performance, but profit before tax printed positive at 0.08, implying material extraordinary gains that bridged the gap. Net income ended positive at 0.06 (EPS 1.09 JPY), but this was not driven by core operations and thus may not be sustainable. Earnings quality is weak: operating cash flow was -0.16, and the OCF/Net Income ratio of -2.62x signals cash earnings are lagging reported profit. Liquidity is very strong (current ratio 782.6%, cash 13.51 vs current liabilities 2.22), and leverage is low (D/E 0.14x), mitigating near-term solvency risk despite negative operating leverage. Intangibles are heavy (goodwill 6.06; total intangible assets 6.51), representing a large share of assets and elevating impairment risk if growth slows. Interest coverage is negative due to operating losses, but absolute interest burden is small (interest expense 0.01). Capital expenditures were minimal (-0.02), but financing cash flow was sizable at -3.34, largely from share repurchases (-1.60), signaling capital return despite weak cash generation. Forward-looking, the key debate is whether revenue momentum and cost discipline can flip operating margin into positive territory without reliance on one-time gains. If SG&A efficiency improves and gross margin holds, operating breakeven appears within reach; if not, continued cash burn could erode flexibility. Overall, the quarter shows promising growth but insufficient earnings quality and core profitability to underwrite a sustained inflection yet.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.3% = Net Profit Margin 0.7% × Asset Turnover 0.329 × Financial Leverage 1.14x. The weakest link is asset turnover (0.329), reflecting a cash-heavy, intangible-rich balance sheet relative to sales. Net margin is slim at 0.7%, and notably operating margin is negative (-4.6%), with net profit only achieved via non-operating/extraordinary items. The component most visibly shifting versus last year is operating margin: based on the YoY math, operating margin improved from roughly -6.7% to -4.6% (+210 bps), indicating incremental operating leverage as revenue scaled. Business driver: revenue growth outpaced the absolute increase in operating losses, but SG&A at 4.49 still exceeded gross profit of 4.11, keeping the core in the red. Sustainability: fragile—net margin depends on non-recurring items (PBT positive despite ordinary loss), so absent further gross profit scale and SG&A discipline, ROE risks slipping back to near-zero or negative. Concerning trend: SG&A as a share of revenue is high at ~55%, exceeding gross profit and signaling insufficient operating leverage so far; with EBITDA at -0.23, interest coverage is negative, reinforcing the need for operating improvement.

Growth Assessment

Revenue growth of +21.1% YoY to 8.10 is robust and suggests improving product-market traction in AI solutions. The quality of growth is mixed: gross margin at 50.7% is healthy, but GP (4.11) did not cover SG&A (4.49), resulting in an operating loss (-0.37). Ordinary income at -0.42 deteriorated YoY, while PBT at 0.08 implies extraordinary gains, pointing to non-recurring contributions to headline profit. With depreciation and amortization of 0.14 and EBITDA at -0.23, operating scalability remains the gating factor to sustainable profitability. Outlook hinges on: maintaining 15–20%+ revenue growth, improving GP/SG&A ratio via pricing/mix and cost control, and reducing reliance on one-offs. If revenue momentum persists and SG&A growth moderates, operating margin could turn positive over the next few quarters; conversely, if customer acquisition costs and R&D-related opex stay elevated, losses could persist despite growth.

Financial Health

Liquidity is strong: current ratio 782.6% and quick ratio 780.8%, with cash and deposits of 13.51 versus current liabilities of 2.22. Solvency is conservative: D/E 0.14x; total liabilities 2.93 against equity 21.68. Interest-bearing debt is small (short-term loans 0.10; long-term loans 0.07), and there is no maturity mismatch risk given ample cash. No explicit off-balance sheet obligations are reported in the dataset provided. Warning thresholds: current ratio is well above 1.0 and D/E far below 2.0—no red flags on these metrics. However, heavy intangibles (goodwill 6.06; intangible assets 6.51) make up a sizable portion of assets (over 25% for goodwill alone and over 50% including other intangibles), posing impairment and covenant-light asset quality risks if performance underwhelms.

Cash Flow Quality

OCF of -0.16 versus net income of 0.06 yields OCF/NI of -2.62x, a clear earnings quality concern. The deficit indicates that reported profit was not backed by cash generation, likely reflecting working capital outflows and/or non-cash gains (extraordinary items) supporting PBT. Capex was minimal at -0.02; a simple FCF proxy (OCF - Capex) would be about -0.18, but full investing CF is unreported, so true FCF could differ. Financing CF was -3.34, including share repurchases of -1.60, which, combined with negative OCF, implies cash drawdown to fund both operations and capital returns. No apparent signs of aggressive working capital manipulation are visible from the limited line items, but the divergence between OCF and NI warrants close monitoring. Sustainability for dividends/capex: with negative OCF and limited capex needs, shareholder returns are currently funded by balance sheet strength rather than cash generation.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported, so payout ratios cannot be calculated. With net income modestly positive (0.06) but OCF negative (-0.16), sustainable cash coverage for any potential dividend is not evident from this quarter’s cash flows. If a dividend exists or is planned, it would presently rely on cash on hand (13.51) rather than internally generated free cash flow. Given negative EBITDA and operating losses, prudent policy would hinge on restoring positive OCF before committing to higher payouts. Absent disclosed guidance or policy, dividend outlook remains uncertain.

Risk Assessment

Business Risks:

• Execution risk in scaling AI product revenue to cover elevated SG&A.
• Pricing and mix pressure that could cap gross margin near ~50% and delay breakeven.
• Customer concentration risk (common in niche AI/SaaS), though not disclosed here.
• Talent retention and wage inflation pushing up personnel-related SG&A.
• Intangible asset impairment risk if growth slows (goodwill 6.06; total intangibles 6.51).
• Dependence on potential one-off/extraordinary gains to achieve positive PBT.

Financial Risks:

• Negative operating cash flow despite reported profit (OCF/NI -2.62x).
• Negative interest coverage driven by operating losses, albeit with low absolute debt.
• Capital returns (share repurchases -1.60) reducing cash buffer while core remains loss-making.
• Potential future funding needs if cash burn persists and growth investments continue.

Key Concerns:

• Core profitability: operating margin still -4.6% despite 21% revenue growth.
• Ordinary income negative (-0.42) versus positive PBT (0.08), implying reliance on non-recurring items.
• High SG&A (4.49) exceeding gross profit (4.11), indicating insufficient operating leverage.
• Asset quality: large goodwill and intangibles heighten impairment downside in a downturn.

Investment Implications

Key Takeaways:

• Strong revenue momentum (+21.1% YoY) but core operations remain loss-making.
• Operating margin improved roughly +210 bps YoY to -4.6%, yet still negative.
• Net profit (0.06) appears supported by extraordinary gains (PBT positive while ordinary income negative).
• Earnings quality weak: OCF/NI -2.62x and EBITDA negative (-0.23).
• Balance sheet is robust (cash 13.51; D/E 0.14x), providing near-term resilience.
• Intangibles are sizable, raising impairment risk if growth falters.
• Buybacks (-1.60) amid negative OCF reduce financial flexibility if losses persist.

Metrics to Watch:

• Operating margin and EBITDA trajectory toward breakeven.
• OCF/NI ratio and working capital movements.
• Gross margin stability and pricing/mix trends.
• SG&A growth versus revenue growth (operating leverage).
• Recurring vs. non-recurring items bridging ordinary income to PBT.
• Customer concentration and retention/ARR (if disclosed).
• Goodwill impairment indicators and ROIC improvement from -3.2%.

Relative Positioning: Within Japan’s small-cap AI/software cohort, the company exhibits above-average revenue growth but below-peer profitability and cash conversion, offset by a stronger-than-average cash position and low leverage.

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