Quick View
| Metric | Current | Prior | YoY |
|---|---|---|---|
| Revenue | ¥21.6B | ¥17.3B | +24.8% |
| Operating Income | ¥0.6B | ¥1.0B | −39.6% |
| Ordinary Income | ¥0.7B | ¥1.0B | −36.4% |
| Net Income | ¥0.4B | ¥0.7B | −38.4% |
| ROE | 2.0% | 3.4% | - |
Executive Summary
FY2026 Q2 results show revenue of 21.6B yen (YoY +24.8%), operating income of 0.6B yen (YoY -39.6%), ordinary income of 0.7B yen (YoY -36.4%), and net income of 0.4B yen (YoY -38.4%). The company achieved strong top-line growth but experienced significant profit compression due to rising SG&A expenses. Gross profit margin remained healthy at 34.6%, but operating margin declined to 2.9% from 5.8% in the prior year period. Basic EPS decreased to 11.20 yen from 18.33 yen YoY. Operating cash flow turned negative at -0.5B yen, representing a -320.6% change from the prior period, resulting in negative free cash flow of -1.1B yen. Despite profit decline, the company maintains strong liquidity with cash and deposits of 17.2B yen, up 173% YoY.
Performance Drivers
Revenue increased 24.8% YoY to 21.6B yen, driven by expansion in the company's IT and telecommunications service offerings. Cost of sales rose to 14.2B yen while gross profit reached 7.5B yen, maintaining a gross margin of 34.6%. The primary driver of profit decline was SG&A expenses of 6.9B yen, representing 31.7% of revenue, which grew at a rate exceeding revenue growth. This resulted in operating income compression to 0.6B yen with an operating margin of just 2.9%, down from approximately 5.8% in the prior period. The gap between operating income (0.6B yen) and ordinary income (0.7B yen) was minimal at approximately 0.1B yen, indicating limited non-operating factors. However, the gap between ordinary income (0.7B yen) and net income (0.4B yen) represented approximately 42% reduction, primarily attributable to tax expenses on the profit before tax of 0.7B yen. Non-recurring factors include a significant 768% increase in intangible fixed assets from 0.09B yen to 0.79B yen, suggesting substantial investment in software development or digital platform capabilities during the quarter. This represents a revenue up, profit down pattern, with top-line momentum offset by operational cost pressures and investment-phase expenditures.
Key Metrics
[Profitability] ROE of 2.0% declined substantially from improved levels, with net profit margin compressed to 1.9% (0.4B yen net income on 21.6B yen revenue). Operating margin deteriorated to 2.9%, down approximately 2.9 percentage points from the prior year's 5.8%. The profitability decline primarily stems from SG&A ratio expansion to 31.7% of revenue. [Cash Quality] Cash and deposits stand at 17.2B yen, providing short-term debt coverage of 2.64x against current liabilities of 6.5B yen. However, operating cash flow turned negative at -0.5B yen, with a concerning OCF to net income ratio of -1.26x, indicating earnings are not converting to cash. [Investment Efficiency] Asset turnover of 0.794 (annualized revenue basis against total assets of 27.3B yen) demonstrates moderate efficiency. Receivables turnover reflects approximately 100 days sales outstanding, indicating extended collection cycles. Inventory increased 109% YoY to 0.5B yen. [Financial Health] Equity ratio remains strong at 76.1%, up from 77.1% in the prior period. Current ratio of 375.7% indicates robust liquidity. Financial leverage stands at 1.31x with debt-to-equity ratio of 0.31x, reflecting conservative capital structure.
Cash Flow Analysis
Operating cash flow of -0.5B yen represents -1.26x net income of 0.4B yen, indicating significant cash consumption despite profitable operations. The negative operating cash flow appears driven by working capital movements, particularly the buildup in accounts receivable and inventory, combined with tax payments. Accounts payable increased 42.9% to 4.9B yen, providing some working capital relief, but this was insufficient to offset cash tied up in receivables collection delays. Investing cash flow of -0.6B yen was primarily allocated to intangible asset acquisitions of 0.6B yen, likely representing software development and digital platform investments. Financing cash flow remained near zero at 0.0B yen, indicating no significant external funding or shareholder distributions during the period. Free cash flow of -1.1B yen reflects the combined cash consumption from operations and strategic investments. Despite negative cash generation, cash and deposits surged 173% YoY to 17.2B yen, with the increase likely attributable to prior period equity financing or operational cash buildup that preceded the current quarter's working capital expansion.
Earnings Quality
Ordinary income of 0.7B yen versus operating income of 0.6B yen shows non-operating net contribution of approximately 0.1B yen, representing 0.5% of revenue. This modest positive contribution suggests limited reliance on non-core income sources. The composition of non-operating income is not detailed but appears to consist primarily of interest and financial income given the substantial cash holdings. Non-operating factors constitute less than 5% of operating results, indicating earnings are predominantly driven by core business activities. However, earnings quality faces significant concerns from the cash conversion perspective. Operating cash flow is negative while net income is positive, producing an OCF to net income ratio of -1.26x, substantially below the healthy threshold of 0.8x. The cash conversion ratio of -0.82x indicates EBITDA is not translating to operating cash flow. Accrual ratio of 3.4% suggests moderate earnings quality on an accrual basis, but the 100-day receivables turnover period signals collection challenges. The divergence between accounting profits and cash generation warrants close monitoring, as it may indicate revenue recognition timing issues, customer payment delays, or aggressive working capital deployment that could pressure future liquidity if sustained.
Guidance Update
Progress toward full-year guidance shows revenue at 43.2% of the 50.0B yen target, operating income at 12.4% of the 5.0B yen target, ordinary income at 13.2% of the 5.0B yen target, and net income at 10.3% of the 4.0B yen target. At the Q2 midpoint, standard progress would be 50%, indicating revenue tracking is moderately behind at -6.8 percentage points while profit metrics are significantly lagging expectations. Operating income progress of 12.4% represents a -37.6 percentage point shortfall versus the 50% benchmark, suggesting either pronounced seasonality weighted to H2, planned second-half operational improvements, or potential risk to full-year guidance. The company's forecast implies substantial H2 acceleration is required, with operating income needing to reach 4.4B yen in H2 versus 0.6B yen in H1, representing a 7.3x increase. This assumes operating margin expansion to approximately 15% in H2 from 2.9% in H1. The guidance appears predicated on completion of current investment phase spending, realization of operational leverage from revenue scale, and normalization of SG&A ratios. Key assumptions likely include successful deployment of the intangible assets acquired in Q2, improved gross margin through product mix or pricing, and significant SG&A cost discipline in the second half.
Risk Factors
Working capital deterioration and extended receivables collection represent the primary operational risk, with days sales outstanding reaching approximately 100 days and operating cash flow turning negative at -0.5B yen despite profitable operations. This cash conversion weakness, quantified by OCF to net income ratio of -1.26x and cash conversion ratio of -0.82x, could pressure liquidity if sustained over multiple quarters. Profitability compression driven by SG&A expense growth poses significant risk to earnings recovery, with operating margin declining to 2.9% from 5.8% YoY. The company requires operating margin expansion to approximately 15% in H2 to achieve full-year guidance of 5.0B yen operating income, representing a 5.2x improvement from H1 levels. Failure to control SG&A or realize planned operational leverage would result in material earnings shortfalls. Investment effectiveness risk stems from the 768% increase in intangible fixed assets to 0.8B yen, likely representing software development or platform investments. If these investments fail to generate anticipated revenue contributions or require impairment, the company faces both asset write-downs and failure to achieve the guided revenue growth of 34.3% for the full year.
Industry Benchmark (Reference - Proprietary Data)
[Industry Position] (Reference - Proprietary Analysis) The company's profitability metrics significantly underperform IT and telecommunications sector medians. ROE of 2.0% falls below the industry median of 5.6% and the interquartile range of 0.7% to 6.2%, placing the company in the lower quartile. Operating margin of 2.9% substantially trails the industry median of 14.0% (IQR: 3.8% to 18.5%), indicating material operational efficiency challenges. Net profit margin of 1.9% is well below the sector median of 9.2% (IQR: 1.1% to 14.0%). However, the company demonstrates relative strength in several areas. Revenue growth of 24.8% YoY exceeds the industry median of 21.0% (IQR: 15.5% to 26.8%), positioning in the upper half of sector peers. Asset turnover of 0.794 significantly outperforms the industry median of 0.35, indicating superior asset utilization efficiency. Financial health metrics show mixed positioning: equity ratio of 76.1% exceeds the industry median of 60.2% (IQR: 50.8% to 88.4%), reflecting conservative leverage, while current ratio of 375.7% far surpasses the median of 7.74x. The cash conversion ratio of -0.82 substantially underperforms the industry median of 1.22 (IQR: 0.86 to 1.75), representing a critical area requiring improvement. Receivables turnover of approximately 100 days compares unfavorably to the industry median of 116.70 days, though falling within the IQR range of 81.61 to 167.74 days. (Industry: IT and Telecommunications, N=7 companies, Comparison: FY2025-Q2, Source: Proprietary analysis)
Key Takeaways from Earnings
Strong revenue momentum of 24.8% YoY combined with superior asset turnover of 0.794 versus industry median of 0.35 indicates the company is effectively converting its asset base into sales, positioning it well within the growth segment of the IT and telecommunications sector. However, this top-line success has not translated to bottom-line performance, with operating margin of 2.9% substantially trailing the industry median of 14.0%, suggesting the company is in an investment or scaling phase where cost structures have not yet achieved operational leverage. The critical earnings characteristic is the severe disconnect between accounting profits and cash generation, with operating cash flow of -0.5B yen despite net income of 0.4B yen, producing a concerning OCF to net income ratio of -1.26x that ranks among the weakest in the sector where median cash conversion ratio is 1.22. The substantial increase in intangible assets by 768% to 0.8B yen coupled with strong cash reserves of 17.2B yen suggests the company is executing a strategic investment program, likely in software platforms or digital capabilities, with H2 FY2026 representing a critical inflection point where these investments must demonstrate returns through margin expansion to approximately 15% to achieve full-year guidance of 5.0B yen operating income.
This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.
AI Financial Analysis
Executive Summary
unerry delivered strong top-line growth in FY2026 Q2, but profitability and cash conversion weakened materially as operating expenses outpaced revenue. Revenue rose 24.8% year on year to ¥2.164bn. Gross profit increased to ¥748m, supported by a 34.6% gross margin. The gross margin was approximately 40bp below the prior-year level of about 35.0%, indicating modest cost-of-sales pressure. SG&A expenses increased 36.2% year on year to ¥686m, materially faster than revenue growth. As a result, operating income declined 39.6% to ¥62m despite the revenue expansion. The operating margin compressed by roughly 300bp to 2.9% from approximately 5.9% a year earlier. Ordinary income fell 36.4% to ¥66m, while net income declined 38.4% to ¥41m. The net margin declined by approximately 200bp to 1.9% from about 3.9% in the prior-year period. Reported annualized ROE was 4.0%, below the level generally associated with efficient capital deployment. Operating cash flow was negative ¥52m against positive net income of ¥41m, producing an OCF/net-income ratio of negative 1.26x. Free cash flow was negative ¥109m, reflecting both weak operating cash generation and ¥58m of intangible-asset purchases. Receivables increased by ¥94m in the cash-flow bridge and inventories increased by ¥25m, while the increase in payables of ¥146m only partly offset these outflows. The balance sheet nevertheless remains highly liquid, with cash and deposits of ¥1.725bn, a 375.7% current ratio, and a 0.31x debt-to-equity ratio. Full-year guidance implies a substantial second-half recovery, as Q2 cumulative progress is only 43.3% for revenue, 12.4% for operating income, and 10.3% for net income. The key issue for the remainder of FY2026 is whether revenue growth can translate into operating leverage, improved conversion of receivables into cash, and the sharp earnings acceleration embedded in guidance.
Profitability Analysis
The reported annualized DuPont ROE of 4.0% is decomposed into a 1.9% net profit margin, 1.587x asset turnover, and 1.31x financial leverage. The low ROE is principally a margin issue rather than a leverage or asset-utilization issue: financial leverage is conservative and asset turnover is reasonable for the current asset base. Revenue growth of 24.8% did not convert to operating-profit growth because SG&A increased 36.2%, exceeding both revenue growth and gross-profit growth. Gross profit grew approximately 23.3% to ¥748m, but SG&A absorbed 91.7% of gross profit, versus roughly 83.0% in the prior-year period. Consequently, operating income fell to ¥62m and the EBIT margin compressed to 2.9%, which is below the 5% efficiency threshold. EBITDA was ¥63m and the EBITDA margin was also 2.9%, as depreciation and amortization were limited at ¥1m. The 5-factor analysis shows a tax burden of 0.615, equivalent to a 37.2% effective tax rate, which further constrained conversion from pre-tax profit to net income. The interest burden of 1.075 reflects modest net non-operating income, principally ¥4m of dividend income, rather than financing stress. Non-operating income represented only about 0.3% of revenue and does not materially alter the assessment that the earnings slowdown originated in core operations. The sustainability of the margin decline depends on whether elevated SG&A is linked to scalable customer acquisition, platform development, and revenue capacity; the Q2 figures alone show no current operating leverage. Intangible assets increased to ¥79m and related purchases were ¥58m, suggesting continued investment in software or platform capabilities, but these investments need to support future gross-profit expansion to justify the near-term margin dilution.
Growth Assessment
Revenue growth of 24.8% demonstrates continued demand expansion, but the slower 23.3% growth in gross profit and the decline in operating income indicate that growth quality weakened in Q2. Revenue guidance is ¥5.002bn for FY2026, implying full-year growth of 34.3%. Q2 cumulative revenue of ¥2.164bn represents 43.3% of the full-year target, 6.7 percentage points below the standard 50% first-half progress rate. The implied second-half revenue requirement is ¥2.838bn, or 31.1% higher than first-half revenue. Operating-income guidance of ¥500m makes Q2 progress only 12.4%, 37.6 percentage points below the standard 50% benchmark. The company therefore needs ¥438m of operating income in the second half, compared with ¥62m in the first half. This implies a second-half operating margin of approximately 15.4%, versus 2.9% in the first half. Net-income guidance of ¥400m has only 10.3% progress, requiring ¥359m in the second half and an implied second-half net margin of approximately 12.7%. The forecast profile therefore requires not merely continued sales growth but a very substantial reversal in SG&A-to-sales intensity and profit conversion. The rise in receivables to ¥593m, equal to 21.7% of total assets, makes collection execution relevant to the sustainability of reported revenue growth. The higher inventory balance of ¥49m may reflect capacity or project-delivery needs, but it also increased working-capital absorption during the period.
Financial Health
Financial health is strong from a near-term liquidity and balance-sheet-risk perspective. Current assets totaled ¥2.449bn against current liabilities of ¥652m, resulting in a current ratio of 375.7%. The quick ratio was similarly robust at 368.2%, indicating that liquidity is not dependent on inventory liquidation. Cash and deposits were ¥1.725bn, representing 63.2% of total assets and covering current liabilities by approximately 2.6x. Working capital was a positive ¥1.797bn. Total liabilities were ¥652m, or 23.9% of total assets, while equity totaled ¥2.075bn. Debt-to-equity was 0.31x, well below the 2.0x level associated with aggressive leverage. All reported liabilities are current, but the substantial surplus of current assets over current liabilities limits maturity-mismatch risk. Accounts payable increased 42.9% year on year to ¥485m, broadly accompanying the expansion in business activity and providing working-capital funding. Cash and deposits increased 173.1% year on year to ¥1.725bn, strengthening the company's capacity to fund operating volatility and platform investment internally. Intangible assets rose ¥70m, or 768.3%, to ¥79m; at 2.9% of total assets this remains a limited balance-sheet concentration. The balance sheet has no apparent leverage-driven constraint, but the cash balance should be monitored alongside continuing negative free cash flow.
Notable B/S Changes
Cash & deposits: +¥1.093bn (+173.1%) to ¥1.725bn - materially strengthens liquidity and provides funding capacity for investment and working-capital volatility. Intangible assets: +¥70m (+768.3%) to ¥79m - reflects increased platform or software investment; the asset remains modest at 2.9% of total assets, but future monetization should be monitored. Inventories: +¥25m (+108.7%) to ¥49m - increased working-capital commitment and contributed to negative operating cash flow. Accounts payable: +¥146m (+42.9%) to ¥485m - provides partial operating funding, though sustained growth in payables should be assessed against underlying purchasing and delivery activity.
Cash Flow Quality
Cash-flow quality is the principal financial concern in Q2. Operating cash flow was negative ¥52m despite net income of ¥41m, producing an OCF/net-income ratio of negative 1.26x and triggering an earnings-quality alert. Cash conversion, measured as OCF divided by EBITDA, was negative 0.82x, also below the 0.7x warning threshold. This divergence means reported profit was not converted into operating cash during the first half. Working-capital movements were a key driver: trade receivables increased by ¥94m and inventories increased by ¥25m. The ¥146m increase in trade payables offset part of this cash absorption, but operating cash flow remained negative. Income taxes paid were ¥81m, exceeding the current period's ¥25m tax expense and further depressing cash generation. The accruals ratio of 3.4% remains below the 5% benchmark, which moderates concern over broad-based accounting accrual risk, but it does not offset the adverse cash-conversion outcome. Investing cash flow was negative ¥58m, entirely associated with intangible-asset purchases. Consequently, free cash flow was negative ¥109m. The investment level represents approximately 2.7% of first-half revenue and is manageable relative to the cash balance, but recurring negative operating cash flow would reduce flexibility over time. Improvement in receivables collection and normalization of operating cash conversion are necessary for earnings quality to align with the stated profit trajectory.
Dividend Sustainability
The company paid no Q2 dividend and full-year guidance also indicates DPS of ¥0. Accordingly, there is no current dividend payout burden on earnings or cash flow. Retaining capital is consistent with negative free cash flow of ¥109m and the need to fund intangible-asset investment. The absence of dividends also preserves the ¥1.725bn cash position while management pursues the growth and margin recovery embedded in full-year guidance. Dividend sustainability is therefore not a near-term constraint; the more relevant capital-allocation issue is whether retained cash is converted into durable operating cash flow and improved returns on equity.
Risk Assessment
Business risks include Operating leverage risk: SG&A increased 36.2% year on year, faster than 24.8% revenue growth, causing operating margin to decline to 2.9% from approximately 5.9%., IT-platform investment execution risk: ¥58m of intangible-asset purchases and a 768.3% increase in intangible assets require future monetization through revenue growth or efficiency gains., Working-capital execution risk: receivables increased by ¥94m in the operating cash-flow bridge, making collection timing and customer payment behavior material to cash generation., Technology and competitive risk: as a location-data and IT-platform business, the company faces product obsolescence, cybersecurity/data-governance exposure, and competition for technology talent and customer budgets..
Financial risks include Earnings-quality risk: OCF/net income was negative 1.26x, materially below the 0.8x alert threshold, because positive accounting earnings did not convert into cash., Low cash-conversion risk: OCF/EBITDA was negative 0.82x, indicating that the current earnings base is not self-funding operating investment., Guidance execution risk: only 12.4% of full-year operating-income guidance and 10.3% of net-income guidance were achieved in the first half, requiring an implied 15.4% second-half operating margin., Free-cash-flow risk: negative ¥109m FCF, if persistent, would gradually draw on cash despite the presently strong liquidity position..
Key concerns include Highest priority: the company must demonstrate a sharp second-half improvement in SG&A productivity to bridge from a 2.9% first-half operating margin to the approximately 15.4% margin implied by guidance., High priority: receivables collection and operating cash flow need to improve, since cash generation lagged both net income and EBITDA., Moderate priority: inventory rose 108.7% year on year to ¥49m; its turnover and relation to project demand should be monitored as revenue scales., Mitigating factor: liquidity is strong, with a 375.7% current ratio, 0.31x debt-to-equity, and ¥1.725bn of cash and deposits..
Investment Implications
Key takeaways include Revenue momentum remained positive at 24.8% year-on-year growth, but current profitability did not scale with sales., The central operating signal is margin compression: operating margin fell to 2.9% as SG&A growth of 36.2% exceeded revenue growth., The company retains substantial financial flexibility through ¥1.725bn of cash, a 375.7% current ratio, and low leverage., Negative operating cash flow and negative free cash flow make receivables conversion and working-capital discipline key tests of earnings quality., Full-year targets embed a highly back-end-loaded earnings profile and require a marked second-half step-up in margin..
Metrics to watch include Quarterly revenue growth versus SG&A growth, Operating margin and EBITDA margin, particularly progress toward the implied 15.4% second-half operating margin, Trade receivables growth, collection timing, and operating cash flow, OCF/net income and OCF/EBITDA cash-conversion ratios, Intangible-asset purchases and evidence of revenue or gross-profit return on these investments, Progress against FY2026 guidance for revenue, operating income, and net income.
Regarding relative positioning, The company is financially conservative relative to common liquidity and leverage benchmarks, but its current 2.9% EBIT margin, 1.9% net margin, 4.0% annualized ROE, and negative cash conversion place operating efficiency and earnings quality below stronger IT-services profitability profiles. Its positioning depends on whether current investment and SG&A intensity create scalable platform economics in the second half.