internet infinity INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.95B
• Operating Income: ¥203M
• Net Income: ¥143M
• EPS: ¥25.46

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

For FY2026 Q2, Internet Infinity (6545) delivered solid top-line growth with revenue of ¥2,946 million, up 12.5% YoY, but profitability lagged as operating income declined 9.2% to ¥203 million. The reported gross profit margin of 35.3% and EBITDA margin of 8.7% indicate mid-30s gross margin with modest operating leverage. Despite revenue growth, operating margin compressed to roughly 6.9%, implying higher cost pressure and/or increased SG&A to drive growth. Net income came in at ¥135 million (-5.4% YoY), translating to a net margin of 4.58%, consistent with the provided DuPont decomposition. ROE is calculated and reported at 8.30%, driven by net margin of 4.58%, asset turnover of 0.666x, and financial leverage of 2.72x. Cash generation is respectable: operating cash flow (OCF) of ¥162 million results in an OCF/net income ratio of 1.20x, suggesting earnings are largely backed by cash. Liquidity appears comfortable with a current ratio of 168.2% and positive working capital of ¥1,341 million. Leverage is moderate-to-elevated with debt-to-equity of 1.65x and healthy interest coverage at 18.6x, indicating manageable financial risk under current earnings power. Ordinary income of ¥231 million exceeded operating income, suggesting positive non-operating contributions net of interest expense of ¥10.9 million. Income tax expense of ¥84.6 million implies a normalized effective tax rate in the high-30% range, though a 0.0% effective tax rate appears in the calculated metrics due to disclosure gaps; we do not rely on that figure. Balance sheet figures show total assets of ¥4,421 million, liabilities of ¥2,682 million, and equity of ¥1,627 million; this implies an approximate equity ratio near the high-30% range, notwithstanding the reported 0.0% (unreported) equity ratio metric. Note that there is an internal inconsistency between the disclosed cost of sales and gross profit; we anchor our margin analysis on the provided gross profit and calculated margin. Cash and equivalents, investing cash flows, and certain share metrics are unreported (shown as zero), limiting precision on free cash flow and per-share analysis. The company did not pay a dividend (DPS ¥0, payout 0%), consistent with a reinvestment posture and balance sheet reinforcement. Overall, the quarter shows healthy demand but margin pressure and higher SG&A intensity, with adequate liquidity and strong interest coverage supporting near-term resilience. Strategic focus should balance growth investments with margin discipline to preserve ROE momentum. Key watch items include operating expense control, cash conversion, and leverage management amid continued top-line expansion.

Profitability Analysis

ROE is 8.30% via DuPont: Net margin 4.58% × Asset turnover 0.666× × Financial leverage 2.72×. Gross margin is reported at 35.3%, implying decent value-add but below high-margin software peers, consistent with a services-heavy mix. Operating margin is ~6.9% (¥203m/¥2,946m) and declined YoY as operating income fell 9.2% despite double-digit revenue growth, indicating cost inflation (labor, marketing, or platform costs) or deliberate growth investments. EBITDA margin of 8.7% suggests limited operating leverage this quarter; D&A is modest at ¥53m, so margin deterioration is primarily above D&A. Ordinary income exceeded operating income, indicating supportive non-operating balance (e.g., subsidies, financial income) partially offsetting interest expense of ¥10.9m. Interest coverage is strong at 18.6x, so financing costs are not the margin bottleneck. The discrepancy between reported cost of sales and gross profit suggests relying on the reported gross margin for quality assessment; assuming 35.3%, gross profit growth likely trailed revenue given operating margin compression. Overall profitability is acceptable for growth phase but below best-in-class SaaS or asset-light benchmarks; improving operating efficiency and pricing power will be key to lift ROE.

Growth Assessment

Revenue grew 12.5% YoY to ¥2,946m, a robust pace indicative of healthy underlying demand across core offerings. However, operating income declined 9.2% YoY to ¥203m, signaling that revenue expansion came with higher costs or mix shifts compressing margins. Net income fell 5.4% to ¥135m; the gap between revenue and profit growth points to near-term investment or cost pressures. With EBITDA at ¥256m and D&A at ¥53m, growth appears organic rather than capex-driven this quarter, though lack of investing cash flow disclosure limits visibility on capital intensity. Asset turnover at 0.666x indicates moderate efficiency; sustained double-digit sales growth should gradually improve turnover if asset base is kept lean. The durability of growth will depend on customer retention, recurring revenue share, and pricing; these are not disclosed here, representing a key data gap. Near-term outlook: continued revenue growth is plausible, but operating leverage is constrained until cost controls or pricing actions take hold. Watch for stabilization or improvement in gross and operating margins as an indicator that growth is becoming higher quality. Non-operating tailwinds supported ordinary income; sustainability of such items should be assessed in subsequent quarters.

Financial Health

Liquidity: Current assets ¥3,306.8m vs current liabilities ¥1,966.0m yields a current ratio of 168.2% and ample working capital of ¥1,340.8m; inventories are unreported but likely not central to the model. Solvency: Total liabilities ¥2,681.9m vs equity ¥1,627.0m implies debt-to-equity of 1.65x; leverage is moderate for a services business but manageable given interest coverage of 18.6x. Equity ratio is reported as 0.0% (unreported); approximating from the balance sheet suggests around 36–37% (¥1,627m/¥4,421m), acknowledging a small balancing discrepancy between assets and liabilities+equity. Capital structure: Financial leverage of 2.72x in the DuPont framework aligns with the above, reinforcing that equity supports about a third of assets. Overall, liquidity is sound and solvency acceptable, but maintaining margin and cash generation is important to keep leverage in check.

Cash Flow Quality

OCF of ¥162.3m vs net income of ¥135.0m gives an OCF/NI ratio of 1.20x, indicating earnings are cash-supported this period. Free cash flow cannot be reliably derived because investing cash flow is unreported (shown as zero); thus FCF in the calculated metrics appears as zero by convention, not as an economic reality. Working capital dynamics were likely a modest tailwind given positive OCF amid declining operating income YoY, but detailed AR/AP movements are undisclosed. Depreciation is ¥53.0m, modest relative to EBITDA, suggesting limited non-cash inflation of earnings. Financing cash flow was a small inflow (¥3.2m), implying minimal balance sheet transactions this quarter. With cash and equivalents unreported, we cannot gauge absolute liquidity buffer, but the strong current asset position suggests adequate coverage.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout 0%). With OCF positive and leverage moderate, capacity for future distributions may exist, but current strategy appears to prioritize reinvestment and margin recovery. FCF coverage cannot be assessed because capex/investing cash flows are undisclosed; the reported FCF coverage of 0.00x reflects missing data rather than an inability to fund dividends. Policy outlook likely remains conservative until profitability expands and disclosure supports clearer FCF visibility.

Risk Assessment

Business Risks:

• Margin pressure from labor cost inflation and higher SG&A to acquire and retain customers
• Potential pricing power limitations in care-related services and SaaS subscriptions
• Regulatory/reimbursement changes in long-term care and healthcare sectors affecting demand and customer economics
• Customer concentration or churn risk in B2B services (data not disclosed)
• Execution risk in scaling platforms while maintaining service quality

Financial Risks:

• Moderate leverage (D/E 1.65x) increases sensitivity to profit volatility
• Reliance on non-operating gains to support ordinary income; sustainability uncertain
• Data gaps for cash and investing flows limit visibility on true liquidity and capital intensity
• Potential working capital swings affecting cash conversion

Key Concerns:

• Operating income decline (-9.2% YoY) despite double-digit revenue growth
• Evidence of margin compression (OPM ~6.9%, EBITDA margin 8.7%)
• Inconsistent cost of sales vs gross profit disclosure; need clarified margin base
• Equity ratio reported as 0.0% is not decision-useful; approximate equity ratio near high-30% range

Investment Implications

Key Takeaways:

• Top-line momentum (+12.5% YoY) is solid, but operating leverage is currently negative
• ROE at 8.3% is supported by moderate leverage; margin improvements are needed to lift returns
• Cash earnings quality is acceptable (OCF/NI 1.20x) with ample working capital
• Leverage is manageable with strong interest coverage (18.6x), but prudence is warranted
• Disclosure gaps (cash, investing CF, equity ratio) constrain precision on FCF and capital intensity

Metrics to Watch:

• Gross margin and operating margin trajectory over the next 2–3 quarters
• SG&A ratio and customer acquisition efficiency
• OCF/NI ratio and working capital turns (DSO/DPO) as proxies for cash conversion
• Leverage (D/E) and interest coverage sensitivity to earnings
• Recurring revenue mix, churn, and ARPU (if/when disclosed)

Relative Positioning: Within TSE Growth-oriented healthcare/services names, the company exhibits stronger revenue momentum but thinner margins and higher leverage than asset-light peers; liquidity is solid, cash conversion is decent, and ROE is middling, leaving upside contingent on margin discipline and improved operating 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