Transaction Media Networks Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.34B
• Operating Income: ¥-169M
• Net Income: ¥-194M
• EPS: ¥-5.82

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: FY2026 Q2 was weak, with a modest top-line increase outweighed by cost pressure and heavy cash outflows, resulting in an operating and net loss. Revenue rose 10.6% YoY to 63.45, while gross profit was 17.97 and SG&A reached 19.66, driving operating income to -1.69. Gross margin printed at 28.3%, but the operating margin was -2.7% (approximately -270 bps), reflecting operating deleverage. Ordinary income came in at -1.82 and net income at -1.93, translating to EPS of -5.82 JPY. EBITDA was positive at 9.21 (14.5% margin), but this was not enough to cover depreciation and amortization of 10.90, pushing EBIT negative. Interest expense was 0.29, leaving interest coverage at -5.92x (debt service stress). The balance sheet shows total assets of 166.69 with sizable intangible assets (71.40) and goodwill (6.07), indicating a heavy amortization burden and potential impairment sensitivity. Liquidity is tight but above the warning line: current ratio 110.3% and quick ratio 110.3%, supported by cash and deposits of 30.08. Leverage is moderate-to-elevated with D/E of 1.58x and long-term loans of 31.88; total equity stands at 64.52. Cash flow was a key negative: operating cash flow was -90.96, far worse than accounting losses, implying a substantial working capital drain and/or cash costs not reflected in EBIT. Capital allocation was aggressive with share repurchases of -35.00 despite negative OCF; financing CF was a net inflow of 1.13, suggesting incremental funding offset part of the buyback. ROE was -3.0% on DuPont metrics (NPM -3.0%, asset turnover 0.381, leverage 2.58x) and ROIC was -2.5%, both below acceptable thresholds. Margin comparison versus prior periods is not disclosed, but current operating margin at -270 bps indicates compression relative to profitability breakeven. Earnings quality is weak given the divergence between NI (-1.93) and OCF (-90.96), despite the mechanical OCF/NI ratio reading as >1 due to both being negative. Forward-looking, the company must improve cost efficiency (SG&A > gross profit), stabilize working capital, and protect EBITDA margins to restore positive EBIT and strengthen interest coverage. High intangibles and amortization will continue to weigh on operating profit near term, requiring revenue scale or mix improvement (take rates) to offset. Absent visible FCF, dividends remain uncertain; buybacks at this cash burn pace are likely unsustainable without external funding or a swift OCF recovery.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-3.0%) × 0.381 × 2.58 ≈ -3.0%. Component drivers: the largest drag is the negative net profit margin, as EBITDA is positive but D&A turns EBIT negative and interest/taxes deepen losses. Asset turnover at 0.381 is low for a transaction platform with large intangible asset base; it dilutes returns given substantial noncurrent assets (intangibles 71.40). Financial leverage at 2.58x provides only modest ROE amplification and cannot offset negative margins. Business explanation: SG&A (19.66) exceeds gross profit (17.97), indicating insufficient scale or elevated operating expense intensity (personnel, platform costs, customer acquisition), while D&A (10.90) reflects heavy past investments in software/platform that suppress EBIT. Sustainability: negative margins are not structurally permanent if revenue scale and operating efficiency improve, but amortization will continue; near-term margin recovery depends on cost actions and monetization (pricing/take rate, utilization) rather than one-time gains. Concerning trends: SG&A growth is not disclosed, but SG&A > gross profit is a red flag; interest coverage is negative, and ROIC at -2.5% is below cost of capital, implying value erosion until margins turn positive.

Growth Assessment

Revenue grew 10.6% YoY to 63.45, showing demand resilience, but the growth did not translate into operating profit due to cost pressure and D&A burden. Gross margin at 28.3% suggests some pricing power or mix protection, yet operating margin at -2.7% signals operating deleverage. EBITDA margin of 14.5% indicates the core service/gross profit engine is intact before amortization, but the amortization load is currently too heavy. Non-operating items netted to a small loss (non-op income 0.16 vs expenses 0.29), not a major driver. With ROIC at -2.5%, incremental growth must be coupled with improved capital efficiency; otherwise, scaling could continue to dilute returns. Outlook hinges on: tightening SG&A, improving utilization of existing platform capacity (raising asset turnover), and stabilizing working capital to support growth without large cash burn. Given limited disclosure (no segment or SG&A breakdown), visibility on growth quality is low, and near-term profit inflection is uncertain until we observe EBIT breakeven and OCF normalization.

Financial Health

Liquidity: current ratio 110.3% and quick ratio 110.3% indicate minimal buffer above 1.0; not an explicit warning, but liquidity is tight. Cash and deposits are 30.08 versus current liabilities of 55.64; coverage is partial and relies on receivables (15.19) and ongoing cash inflows. Solvency: total equity 64.52 vs total liabilities 102.17, with D/E at 1.58x (above conservative benchmark 1.5x but below the 2.0x warning threshold). Interest coverage at -5.92x is a clear debt service concern. Maturity profile: current liabilities (55.64) are slightly below current assets (61.36), reducing immediate maturity mismatch risk; however, the magnitude of negative OCF increases refinancing/rollover reliance. Off-balance sheet: no disclosures provided; potential commitments (e.g., long-term service/lease or vendor obligations) are not reported in the data. Asset quality: intangibles (71.40) and goodwill (6.07) represent a high share of assets; impairment risk exists if growth/profits underperform.

Cash Flow Quality

OCF is -90.96 against NI of -1.93, indicating substantial cash burn beyond accounting losses—likely driven by working capital outflows and/or cash expenses not captured in EBIT. While the OCF/NI ratio mechanically reads >1 due to both being negative, the quality is poor because cash conversion is deeply negative. FCF is not disclosed; capex outflow is -3.11, which, combined with OCF, implies significantly negative implied FCF in the period. Financing CF of +1.13 alongside share repurchases of -35.00 suggests new funding or other inflows offset buybacks, but reliance on financing amid negative OCF is not sustainable. Working capital: AR is 15.19, but lack of prior-period data limits DSO analysis; the scale of OCF implies either receivable growth, prepayments, or other current asset uses. No clear signs of intentional working capital manipulation can be concluded from the limited dataset, but the magnitude of OCF suggests operational cash strain that requires rapid remediation.

Dividend Sustainability

Dividend data is unreported; payout ratios are not calculable. Given negative NI (-1.93) and deeply negative OCF (-90.96), internal cash generation does not support distributions. The company executed share repurchases of -35.00 despite negative OCF, which is aggressive and likely dependent on external financing or balance sheet cash. With ROIC at -2.5% and interest coverage negative, maintaining any shareholder return program would require a swift turnaround in OCF and EBIT; otherwise, distributions risk crowding out necessary investment and liquidity. Policy outlook: absent disclosure of dividend policy, prudence would suggest prioritizing balance sheet and cash flow stabilization before resuming/initiating cash returns.

Risk Assessment

Business Risks:

• Operating deleverage risk: SG&A exceeds gross profit, keeping EBIT negative.
• Amortization burden: high intangibles (71.40) and D&A (10.90) suppress operating profit.
• Commercial execution risk: need to improve take rates/monetization and scale to achieve breakeven.
• Customer concentration or contract repricing risk common in payment/transaction networks (not disclosed but industry-typical).
• Technology and cybersecurity risk: service outages or security incidents could impair revenue and reputation.

Financial Risks:

• Debt service risk: interest coverage -5.92x with D/E 1.58x.
• Liquidity risk: current ratio 1.10 with OCF -90.96 indicates cash burn pressure.
• Refinancing risk: reliance on financing CF (+1.13) amid negative OCF and buybacks.
• Impairment risk: high proportion of intangibles and goodwill susceptible to write-downs if performance lags.
• Working capital risk: large OCF outflows suggest potential receivables build or prepayment exposures.

Key Concerns:

• Sustained negative OCF far exceeding accounting losses.
• EBITDA positive but insufficient to cover D&A; EBIT remains negative.
• Aggressive capital returns (buybacks) despite cash burn.
• ROIC -2.5% indicates value erosion until returns exceed cost of capital.

Investment Implications

Key Takeaways:

• Top-line grew 10.6% YoY but margins deteriorated to an operating loss (-2.7% margin).
• EBITDA margin 14.5% is positive, yet D&A (10.90) drives EBIT negative.
• OCF (-90.96) signals severe cash strain; working capital discipline is a priority.
• Leverage moderate-high (D/E 1.58x) with negative interest coverage (-5.92x).
• High intangibles (71.40) elevate amortization and impairment risks.
• Buybacks of -35.00 look unsustainable absent OCF recovery.

Metrics to Watch:

• Quarterly OCF trajectory and working capital movements (AR, contract assets, prepayments).
• EBITDA and operating margin progress toward breakeven EBIT.
• SG&A intensity vs revenue (SG&A/revenue ratio) and any cost reduction initiatives.
• Interest coverage and net debt/EBITDA.
• ROIC improvement relative to a 7–8% target and asset turnover trends.
• Cash balance versus current liabilities and refinancing activities.

Relative Positioning: Within Japan’s payment/transaction processing peers, the company exhibits decent revenue growth but lags on profitability and cash generation, with higher amortization intensity and weaker interest coverage than would be typical for mature platforms; balance sheet liquidity is thin relative to cash burn, placing it at a disadvantage until cost discipline and working capital normalization are demonstrated.

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