Def consulting,inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥373M
• Operating Income: ¥-253M
• Net Income: ¥-295M
• EPS: ¥-8.07

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

Def consulting reported FY2026 Q2 (non-consolidated, JGAAP) revenue of ¥373.0 million, up a strong 29.0% YoY, but profitability remains deeply negative. Operating income was ¥-253.0 million (flat YoY per disclosure), and ordinary/net income were ¥-296.0 million and ¥-295.0 million, respectively, reflecting continued losses despite top-line growth. Gross profit is disclosed at ¥24.693 million, implying a low gross margin of 6.6%, which is inconsistent with the separately disclosed cost of sales figure; we therefore rely on the disclosed gross profit to assess margin quality. The DuPont framework indicates a net profit margin of -79.09%, asset turnover of 0.107x, and modest financial leverage of 1.04x, yielding a calculated ROE of -8.79%. This points to losses primarily driven by weak margins and low turnover, rather than balance sheet leverage. Operating cash flow was negative at ¥-215.289 million; while less negative than net income (OCF/NI ≈ 0.73), cash generation is still weak, and cash levels are undisclosed (cash and equivalents reported as 0 likely indicates non-disclosure). Financing inflows were sizable at ¥3.318 billion, suggesting an equity raise or similar capital transaction that materially strengthened the balance sheet. Indeed, total equity stands at ¥3.357 billion versus total assets of ¥3.495 billion, implying an equity ratio of approximately 96% (the reported equity ratio of 0.0% appears unreported rather than actual). Liquidity appears adequate with a current ratio of 307% and working capital of ¥211.3 million, although the absence of a reported cash balance limits precision. The company carries light liabilities (total liabilities ¥121.1 million; D/E ≈ 0.04x), reducing near-term solvency risk despite ongoing losses. Depreciation and interest expense are shown as zero, which likely reflects non-disclosure rather than true zeros; EBITDA-based views are therefore incomplete. No dividends were paid (DPS ¥0), consistent with the loss position and early reinvestment phase indicated by the financing inflow. While revenue momentum is positive, margin structure and operating leverage remain the key challenges to reach breakeven. Given data limitations (notably on cash, D&A, interest, and equity ratio), conclusions focus on disclosed non-zero values and internally consistent derived metrics. Overall, Def consulting is positioned with a very strong equity base post-financing, but must improve gross margin and cost discipline to translate growth into sustainable profitability.

Profitability Analysis

ROE decomposition indicates losses are driven by income statement performance rather than balance sheet leverage. With net profit margin at -79.09%, even modest asset turnover (0.107x) and low financial leverage (1.04x) result in a negative ROE of -8.79%. The disclosed gross margin of 6.6% (¥24.693m GP on ¥373.0m revenue) suggests limited pricing power and/or a heavy direct cost burden; note an inconsistency between the cost of sales and gross profit lines, so margin analysis relies on the gross profit disclosure. Operating income of ¥-253.0m implies significant fixed/overhead costs relative to scale—indicative of negative operating leverage at current revenue levels. The lack of disclosed depreciation and interest (both shown as zero) limits assessment of EBITDA and interest burden; however, the ordinary loss (¥-296.0m) close to operating loss suggests minimal non-operating cushion. Effective tax is minimal (income tax ¥1.507m despite losses), consistent with loss-making status. Overall, profitability hinges on improving gross margin and leveraging SG&A more effectively as revenue scales.

Growth Assessment

Revenue growth of 29.0% YoY is robust and indicates demand traction in the first half. However, profit growth quality is poor: operating, ordinary, and net income remain significantly negative, indicating that incremental revenue is not yet covering incremental costs. The low gross margin (6.6%) constrains the ability to convert top-line gains into operating profits; this raises questions about pricing, mix, or delivery efficiency. Asset turnover at 0.107x (interim) is low, but could seasonally improve if second-half billing is stronger; still, turnover alone cannot offset deep margins. With a sizeable equity infusion in the period (¥3.318bn financing CF), the company appears to be funding growth and capacity ahead of profitability. Near-term outlook depends on: sustaining double-digit revenue growth, improving project margins, and moderating SG&A growth to realize operating leverage. Given data gaps (no segment detail, limited cost breakdown, and zero-reported D&A), visibility into drivers of growth quality is limited. Absent clear margin improvement, revenue growth may remain dilutive to earnings in the near term.

Financial Health

Liquidity appears comfortable: current assets of ¥313.3m against current liabilities of ¥102.0m yield a current ratio of 307% and working capital of ¥211.3m. Quick ratio is also reported as 307% given no inventories disclosed (inventory reported as zero). Solvency is strong with total liabilities of ¥121.1m and total equity of ¥3,357.0m, resulting in a very low D/E of ~0.04x. The reported equity ratio of 0.0% is likely an unreported placeholder; based on the balance sheet, the implied equity ratio is approximately 96% (¥3,357m/¥3,495m). The large financing cash inflow (¥3.318bn) underpins this equity-heavy structure, providing a buffer to absorb ongoing operating losses. Cash and equivalents are not disclosed (reported as 0), limiting precision on immediate liquidity, but the strong net equity position and modest liabilities mitigate near-term balance sheet risk.

Cash Flow Quality

Operating cash flow of ¥-215.289m is less negative than net income (¥-295.0m), with OCF/NI ≈ 0.73, suggesting some non-cash charges or favorable working capital effects. However, OCF remains negative, indicating that the core business is not yet self-funding. Investing cash flow is shown as zero (likely unreported), so true free cash flow cannot be precisely calculated; at a minimum, pre-investment FCF is approximately ¥-215m before any capex or investments. The significant financing inflow (¥3.318bn) indicates reliance on external capital to fund operations and growth. Working capital appears positive (current assets exceed current liabilities by ¥211.3m), but without a disclosed cash balance, the mix between cash, receivables, and other current assets is unclear. Overall earnings quality is weak: accounting losses are accompanied by cash losses, albeit with some partial offset via working capital/non-cash items.

Dividend Sustainability

No dividend was paid (DPS ¥0; payout ratio 0%), which is appropriate given the net loss and negative operating cash flow. With operating cash flow at ¥-215.3m and continued operating losses, internal coverage for distributions is absent. The company appears to prioritize balance sheet reinforcement and growth investment, as evidenced by the ¥3.318bn financing inflow. Until operating profitability and positive OCF are established, sustainable dividends are unlikely under typical payout policies. Formal dividend policy is not disclosed in the data; any future policy would likely condition payouts on achieving consistent profitability and free cash flow.

Risk Assessment

Business Risks:

• Low gross margin (6.6%) suggests pricing/mix or delivery efficiency challenges
• Negative operating leverage with high SG&A relative to scale
• Execution risk in converting revenue growth into profitability
• Customer concentration or project timing risk typical for advisory/services (not disclosed but common for the sector)
• Limited visibility due to non-disclosure of key items (cash, D&A, interest detail)

Financial Risks:

• Ongoing negative operating cash flow (¥-215.3m) necessitates continued funding
• Dependence on external financing (¥3.318bn inflow this period) if losses persist
• Measurement uncertainty from unreported cash balance and investment cash flows
• Potential dilution risk if further equity financing is required

Key Concerns:

• Sustained net losses (¥-295.0m) despite 29% revenue growth
• Very low asset turnover (0.107x) alongside weak margins
• Data inconsistencies between cost of sales and gross profit; reliance on disclosed gross profit for analysis
• Inability to confirm liquidity headroom due to non-disclosed cash and equivalents

Investment Implications

Key Takeaways:

• Top-line growth is strong (+29% YoY), but margin structure is currently too weak to deliver profitability
• ROE of -8.79% is driven by deep operating losses; leverage is low and not a primary driver
• Operating cash burn (¥-215.3m) continues; business is not yet self-funding
• Balance sheet is equity-heavy post financing (implied equity ratio ~96%), reducing near-term solvency risk
• Visibility is constrained by unreported items (cash balance, D&A, investing CF), requiring cautious interpretation of cash metrics

Metrics to Watch:

• Gross margin progression from 6.6% toward double digits
• Operating loss trajectory and SG&A-to-sales ratio
• Operating cash flow and working capital movements (DSO, unreported here)
• Revenue growth durability beyond +29% YoY
• Any updates on cash balance and investing cash flows to refine FCF
• Ordinary income versus operating income gap (signals non-operating gains/costs)

Relative Positioning: Versus domestic small-cap consulting/advisory peers, Def consulting shows above-average revenue growth but materially weaker margins and profitability; balance sheet strength is superior due to recent equity financing, positioning the company to invest for scale if it can improve cost efficiency.

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