Ridge-i Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥577M
• Operating Income: ¥71M
• Net Income: ¥67M
• EPS: ¥9.38

Income Statement

Balance Sheet

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

Ridge-i (55720) reported FY2026 Q1 consolidated results under JGAAP with revenue of 5.77 (100M JPY), down 16.1% YoY, indicating a soft start to the fiscal year. Gross profit was 3.60, implying a high gross margin of 62.3%, which suggests resilient pricing and/or a favorable project mix despite lower volumes. SG&A expenses were 2.59, resulting in operating income of 0.71 (-29.1% YoY), evidencing negative operating leverage as the revenue decline translated into a larger drop in operating profit. Ordinary income came in at 0.67 (-32.8% YoY) after minor net non-operating expense. Profit before tax was 1.00, notably above ordinary income, implying the presence of extraordinary gains this quarter not itemized in the provided XBRL line items. Net income was 0.37 (-26.0% YoY), with an effective tax rate of 33.3%. DuPont metrics show a net margin of 6.4%, asset turnover of 0.148x, and financial leverage of 1.09x, yielding a reported ROE of 1.0% for the quarter (not annualized). The balance sheet is conservative: total assets are 38.93, with cash and deposits of 18.28 (47% of assets) and total liabilities of only 3.88. Equity stands at 35.66, implying an analytically derived equity ratio of about 91.6%, despite the reported equity ratio field being unavailable. Working capital is strong at 19.36, and the current and quick ratios are both 623.5%, reflecting ample liquidity, although inventory and receivables were not disclosed. Intangibles total 3.24 (including goodwill of 3.00), a meaningful but manageable 8–9% of assets, introducing some impairment risk but not balance-sheet strain. Interest expense is effectively zero and the interest coverage ratio is reported at 300.85x, consistent with negligible debt service requirements. Cash flow statements were not disclosed, limiting assessment of cash conversion and free cash flow this quarter. Dividend data are also unreported; payout and DPS policy cannot be assessed from this release. Overall, Ridge-i demonstrates strong margins and a fortress balance sheet but saw a notable top-line contraction and negative operating leverage, with the quarterly ROE constrained by modest asset turnover and a one-off boost at the pre-tax line. Key monitoring points are revenue stability, order intake/backlog, cash conversion, and the sustainability of gross margin.

Profitability Analysis

ROE decomposition (DuPont): Net margin 6.4% x asset turnover 0.148x x financial leverage 1.09x = approximately 1.0% quarterly ROE. Operating margin (analytical) is about 12.3% (0.71/5.77), indicating solid core profitability even after SG&A. Ordinary margin is around 11.6% (0.67/5.77), reflecting minor net non-operating expenses. Net margin at 6.4% shows a significant drop from operating level due to taxes and the quarterly revenue shortfall; however, PBT > ordinary suggests extraordinary gains partially cushioned the decline. Gross margin at 62.3% is strong for a services/AI-oriented model, implying favorable pricing, IP leverage, or high-value solution mix. The YoY decline in revenue (-16.1%) versus a larger decline in operating income (-29.1%) indicates negative operating leverage, i.e., fixed cost absorption pressure within SG&A. With a low leverage profile (assets/equity 1.09x), ROE is primarily driven by margins and turnover rather than financial gearing. Asset turnover is low at 0.148x for the quarter, consistent with early-year seasonality and/or project timing in a small-cap services business; improving utilization and billing intensity would be key to lift ROE. Non-operating income/expense are immaterial (0.01/0.02), so core profit dynamics dominate, except for the extraordinary item implied by PBT. Effective tax rate is 33.3%, broadly in line with domestic statutory ranges, leaving limited tax-driven uplift to net profit. No EBITDA disclosure limits assessment of non-cash cost structure and operating leverage sensitivity beyond the margin progression observed. Margin quality appears solid at the gross level; sustaining this spread while restoring growth would materially improve operating income trajectory. The absence of R&D disclosure constrains full assessment of expense mix and capitalization vs. expensing practices that could affect margins. Overall profitability is decent, but scale and growth are needed to mitigate fixed costs and strengthen ROE.

Growth Assessment

Revenue declined 16.1% YoY to 5.77, indicating a contraction versus the prior-year quarter. Operating income fell 29.1% YoY to 0.71, outpacing the revenue decline, consistent with negative operating leverage in a lower-volume quarter. Ordinary income decreased 32.8% YoY to 0.67, underscoring pressure at the pre-tax operating level. Net income fell 26.0% YoY to 0.37, with the drop moderated by extraordinary gains implied by PBT exceeding ordinary income. The strong gross margin (62.3%) suggests the core offerings retain pricing power or value-add despite weaker demand, which is supportive of medium-term earnings if volumes recover. Asset turnover at 0.148x highlights small scale and potentially lumpy bookings; growth will hinge on stabilizing order intake and delivery cadence. With no backlog, segment, or customer concentration disclosure, sustainability of revenue is uncertain from the provided data. The quarter’s results may reflect project timing or seasonality typical to consulting/AI solution businesses, but this cannot be confirmed without additional disclosures. Profit quality is acceptable at the operating level, yet the reliance on a non-recurring item this quarter (given PBT > ordinary) clouds underlying momentum. Outlook commentary is not provided; therefore, near-term trajectory depends on pipeline conversion, retention, and expansion with existing clients. Absent cash flow data, we cannot verify whether the lower earnings reflect delayed collections or simply lower volumes. Maintaining the gross spread while growing delivery volumes would restore operating leverage and earnings growth. The balance sheet capacity (high cash, low debt) provides flexibility to invest in growth, but execution evidence is needed. Overall growth visibility is limited this quarter due to sparse disclosures, but margin resilience provides a foundation if demand normalizes.

Financial Health

Liquidity is very strong: current assets 23.06 vs current liabilities 3.70 yields a current (and quick) ratio of 623.5%. Working capital is 19.36, supported by cash and deposits of 18.28 (about 47% of total assets). Inventories and receivables were not disclosed; thus, the quick ratio equaling the current ratio reflects data limitations rather than the absence of inventories. Solvency is robust: total liabilities are 3.88 against equity of 35.66, implying low leverage and significant balance sheet resilience. Interest-bearing debt is not disclosed, but interest expense is effectively zero, suggesting minimal to no financial debt. The analytically derived equity ratio (equity/asset) is approximately 91.6% (35.66/38.93), although the reported XBRL field is unavailable. Goodwill (3.00) and total intangibles (3.24) represent roughly 8–9% of assets; while manageable, they introduce potential impairment risk if growth underperforms. Accounts payable of 1.78 indicates some supplier credit, but broader working capital composition cannot be assessed without AR/inventory detail. Capital structure remains conservative with a reported debt-to-equity of 0.11x (likely total liabilities to equity). The company appears well-insulated from liquidity shocks and interest rate risk. Overall financial health is strong, anchored by cash-rich, low-debt positioning.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported for the quarter, preventing direct assessment of cash conversion and free cash flow. OCF/Net income and FCF coverage metrics are not calculable. The healthy cash balance (18.28) and strong working capital provide a buffer against short-term cash volatility. Without receivables and inventory disclosure, it is not possible to evaluate DSO or inventory turns; timing of collections remains a key unknown. The large gap between current assets and current liabilities suggests low short-term funding risk even if OCF is temporarily weak. Interest expense near zero implies minimal cash leakage to lenders, improving potential cash retention from earnings. The absence of capex data and depreciation prevents evaluation of maintenance vs. growth investment needs and cash earnings quality. Extraordinary gains implied by PBT exceeding ordinary income may be non-cash; absent CFS detail, the quality of that component cannot be verified. Working capital management (payables 1.78; AR not disclosed) is a key area to monitor for cash conversion. In summary, earnings quality at the operating level looks reasonable, but cash flow quality cannot be confirmed due to missing disclosures.

Dividend Sustainability

Dividend data (DPS, payout ratio, total dividends) are unreported, so current policy and distribution capacity cannot be assessed from this release. With net income of 0.37 in the quarter and retained earnings of 2.95, internal capital remains positive and growing, but the small absolute scale of earnings constrains payout scope in the absence of growth. Free cash flow is unreported, so FCF coverage of any prospective dividend is not calculable. The balance sheet’s high cash position suggests capacity to consider distributions if policy permits, but strategic reinvestment needs and growth priorities are unknown. DOE is unreported. Until OCF and capex data are available, any view on dividend sustainability remains limited. For now, dividend outlook is indeterminate given the lack of disclosure; monitoring management guidance and subsequent quarter filings is essential.

Risk Assessment

Business Risks:

• Revenue volatility due to project timing and small scale, evidenced by -16.1% YoY sales decline
• Negative operating leverage in down quarters, with operating income down -29.1% YoY
• Talent acquisition and retention costs potentially pressuring SG&A and margins (no breakdown disclosed)
• Pricing and mix risk despite high gross margin; sustaining 60%+ gross spreads may be challenging if competition intensifies
• Dependence on potentially concentrated customers or sectors (no concentration/backlog disclosure)
• Execution risk in scaling delivery while maintaining quality and utilization

Financial Risks:

• Cash flow visibility is low due to unreported operating cash flow and working capital details
• Intangible asset and goodwill impairment risk (3.24 in intangibles including 3.00 goodwill)
• Limited asset turnover constrains ROE; requires growth to improve returns
• Potential earnings volatility from extraordinary items, as implied by PBT > ordinary income
• Tax rate variability around 33% could affect net margins in low-profit quarters

Key Concerns:

• Sustained revenue weakness or delayed order intake could prolong negative operating leverage
• Lack of cash flow disclosure impedes assessment of earnings-to-cash conversion
• Reliance on extraordinary gains this quarter muddies underlying profit trend
• Low asset turnover limits ROE despite strong balance sheet
• Potential customer or project concentration risks not disclosed

Investment Implications

Key Takeaways:

• Top line contracted 16.1% YoY; operating income fell 29.1% YoY, indicating negative operating leverage
• Gross margin remains strong at 62.3%, underpinning core profitability
• PBT (1.00) exceeded ordinary income (0.67), suggesting extraordinary gains this quarter
• Quarterly ROE is modest at ~1.0%, constrained by low asset turnover and limited leverage
• Balance sheet is very strong: cash 18.28, low liabilities 3.88, analytically ~92% equity ratio
• Liquidity is ample with current/quick ratio at 623.5% and working capital of 19.36
• Interest burden is negligible (interest expense ~0), with very high coverage
• Cash flow and dividend data are unreported, limiting FCF and payout assessment

Metrics to Watch:

• Order intake/backlog and pipeline conversion to stabilize revenue
• Operating cash flow, free cash flow, and DSO/working capital movements
• Gross margin sustainability and utilization rates
• SG&A trajectory and hiring/productivity to manage operating leverage
• Recurring vs. non-recurring items (extraordinary gains) in P/L
• Asset turnover improvement and project delivery cadence
• Any disclosure on dividends/payout policy and capital allocation

Relative Positioning: Versus Japan small-cap AI/IT services peers, Ridge-i exhibits above-average gross margins and a notably stronger, cash-rich balance sheet with minimal leverage, but smaller scale and lower asset turnover drive higher earnings volatility and modest ROE; improving growth consistency and cash conversion would be key to narrowing gaps with larger, steadier peers.

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