Convano Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.85B
• Operating Income: ¥1.84B
• Net Income: ¥1.26B
• EPS: ¥2.83

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: A strong topline-led quarter with exceptional margins and low leverage, but cash flow quality and heavy investment outlays temper the quality of the print. Revenue reached 38.54 (100M JPY), up 154.7% YoY, underscoring rapid scale-up. Gross profit was 25.60, yielding a gross margin of 66.4%, indicating strong unit economics for the service mix. Operating income came in at 18.42 with an operating margin of roughly 47.8%, reflecting high operating leverage and disciplined SG&A. Profit before tax was 19.26, implying modest net non-operating gains versus operating income. Net income was 12.62, translating to a net margin of 32.8% and basic EPS of 2.83 JPY on an average share base of 445.7 million. ROE was 9.5%, with DuPont showing the result is driven mainly by an unusually high net margin and modest leverage (1.20x), against a low asset turnover of 0.242 due to a large noncurrent asset base. Intangible assets surged to 109.19 with goodwill at 6.73, pointing to significant acquisition/IP capitalization and future amortization drag risks. The equity ratio is robust at 83.2% and D/E is conservative at 0.20x, indicating strong solvency. Operating cash flow of 9.14 lagged net income (12.62), producing an OCF/NI of 0.72 and triggering an earnings quality flag. Free cash flow was deeply negative at -86.37 due to heavy investing outflows (-95.51), likely tied to acquisitions or intangible additions. Financing inflow of 100.72 (and step-up in capital stock and capital surplus) suggests equity issuance funded investment, with dilution reflected in the share count. Because prior-period margin data are not disclosed, we cannot quantify margin expansion/compression in basis points; however, current gross (66.4%), EBITDA (51.4%), and operating (~47.8%) margins are elevated for the sector. The effective tax rate stands at 34.4%, broadly in line with Japan’s statutory levels. Forward-looking, the key questions are sustainability of revenue growth post-integration, conversion of earnings into cash, and the impact of intangible amortization on margins. Overall, fundamentals look solid with balance sheet capacity intact, but cash realization and integration/execution risks warrant close monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.5% = Net Profit Margin (32.8%) × Asset Turnover (0.242) × Financial Leverage (1.20x). The largest contributor is the high net margin, while asset turnover is low and leverage modest. Business driver: strong operating margin (~47.8%) suggests high operating leverage and favorable mix/pricing; PBT exceeded OI by 0.84, indicating a small non-operating tailwind, but not the main driver. The low asset turnover reflects the step-up in noncurrent assets, especially intangibles (109.19) and goodwill (6.73), likely from acquisitions or capitalization of rights/software, which inflate the asset base ahead of full revenue realization. Sustainability: margin levels may normalize as integration costs, amortization of intangibles, and wage/rent inflation catch up; the non-operating uplift appears small and potentially non-recurring. Without YoY SG&A detail, we cannot confirm whether SG&A grew slower or faster than revenue; however, the current SG&A/revenue ratio is about 18.1%, indicating good cost control this quarter. Watch for future amortization (D&A 1.39 now) rising as newly recognized intangibles are amortized, which could compress operating margin and net margin.

Growth Assessment

Revenue growth of +154.7% YoY to 38.54 is exceptional and likely includes inorganic contributions, given the magnitude of intangible assets and goodwill. Operating leverage is clearly visible with a ~47.8% operating margin on a 66.4% gross margin, suggesting strong flow-through. Profit quality: PBT 19.26 vs OI 18.42 indicates limited reliance on non-operating items for the quarter’s profit. That said, OCF of 9.14 trails NI of 12.62, implying accruals or working capital build as the business scales. Outlook hinges on post-acquisition integration, same-store performance, capacity utilization, and staffing productivity in salons. The reported ROIC of 8.9% is healthy (above the 7–8% benchmark), but sustaining this will require continued revenue traction and disciplined capital deployment, particularly given the enlarged intangible base. With financing inflows of 100.72 likely from equity issuance, growth capital is ample; near-term dilution can be offset if synergies and scale efficiencies are realized. Absent YoY margin or segment disclosure, we cannot parse mix or identify growth leaders, so monitoring subsequent quarters for organic vs inorganic split is key.

Financial Health

Liquidity: Current ratio cannot be computed due to unreported current liabilities; we therefore do not flag it. Cash and equivalents stand at 22.41, and current assets at 32.18; short-term loans are 3.00, which appears manageable against liquidity on hand. Solvency: Total liabilities 26.84 vs equity 132.59 yields an equity ratio of 83.2% and D/E of 0.20x, indicating a conservative balance sheet. Interest-bearing debt detail is partially unreported, but disclosed short-term (3.00) and long-term (0.33) loans are small versus equity and assets. Maturity mismatch risk appears low: cash and current assets exceed disclosed short-term borrowings, though undisclosed current liabilities prevent a definitive view. Off-balance items: none disclosed in the provided data. Capital structure saw a sizable equity infusion (capital stock 52.40, capital surplus 57.72), enhancing solvency and funding investments.

Cash Flow Quality

Earnings-to-cash conversion is weak this quarter: OCF/NI at 0.72 (<0.8) triggers an earnings quality caution, likely due to working capital investment during rapid scale-up or accrual timing. Free cash flow was -86.37, driven by large investing outflows (-95.51), which look strategic (acquisitions/intangibles) rather than maintenance capex (capex only -0.11). While strategic, sustained negative FCF would constrain future dividends and require ongoing external funding if not offset by higher OCF. Working capital: without detailed receivables/payables movement, we cannot identify manipulation; however, accounts receivable at 7.17 and inventories at 0.97 are modest versus sales scale, consistent with a services model. Interest coverage cannot be calculated due to unreported interest expense, but low absolute debt suggests limited near-term pressure.

Dividend Sustainability

Dividend information is unreported, so payout ratios and DPS cannot be assessed. Given negative FCF (-86.37) driven by investment and recent equity financing, a conservative or suspended dividend stance would be consistent with a growth/investment phase. If dividends are contemplated, sustainability would require OCF to improve materially and investing cash outlays to normalize; otherwise, dividends would rely on financing, which is undesirable. We will revisit once dividend policy disclosures or DPS figures are available.

Risk Assessment

Business Risks:

• Integration and execution risk from rapid expansion and large intangible additions (109.19) and goodwill (6.73).
• Margin normalization risk as amortization rises and cost inflation (wages, rents) offsets current operating leverage.
• Demand volatility risk in discretionary beauty services impacting utilization and same-store sales.
• Talent acquisition and retention risk in salon operations affecting service capacity and quality.

Financial Risks:

• Earnings quality risk: OCF/NI at 0.72 indicates weaker cash conversion.
• Negative FCF (-86.37) requiring continued external funding if investment intensity remains high.
• Potential impairment risk on goodwill and intangibles if performance underwhelms.
• Dilution risk from recent/possible future equity issuance to fund growth.

Key Concerns:

• Low asset turnover (0.242) after asset base expansion may weigh on ROE if revenue growth slows.
• Limited visibility on current liabilities and interest costs due to unreported items constrains liquidity analysis.
• Non-operating contribution (PBT > OI by 0.84) appears small but should be monitored for one-offs.

Investment Implications

Key Takeaways:

• Strong quarter: revenue 38.54 (+154.7% YoY), gross margin 66.4%, operating margin ~47.8%, net margin 32.8%.
• ROE 9.5% driven by high margin and low leverage (1.20x), offset by low asset turnover (0.242).
• Balance sheet is conservative (equity ratio 83.2%, D/E 0.20x) post equity financing.
• Cash conversion is the weak link (OCF/NI 0.72) and FCF deeply negative due to investing outflows.
• Large intangibles/goodwill elevate amortization and impairment risks but indicate strategic expansion.

Metrics to Watch:

• OCF/Net Income and working capital trends (receivables days, payables days) for cash conversion improvement.
• Amortization trajectory and intangible/goodwill impairment testing outcomes.
• Same-store sales, utilization, and wage/rent inflation to gauge margin durability.
• Asset turnover and ROIC sustainability as the asset base scales.
• Share count changes and any additional equity/debt financing.

Relative Positioning: Versus typical service peers, profitability ratios are currently superior, and leverage is lower, but cash flow conversion is weaker and investment intensity is higher; success hinges on integrating growth assets and translating accounting profits into cash.

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