Convano (6574) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, Convano achieved a significant turnaround from the previous year's operating loss to operating profitability, driven by new contributions from the Healthcare, Consulting, and Investment & Advisory Businesses. Revenue was ¥92.0B (¥23.4B in the same period of the previous year, YoY +292.8%), Operating Income was ¥44.1B (¥-0.8B in the previous year), Profit Before Tax, equivalent to Ordinary Income, was ¥45.0B, and Net Income was ¥29.6B (¥-0.9B in the previous year). The primary driver of revenue growth was the recognition of external revenue from newly established and expanded segments, while the main driver of profit growth was operating leverage resulting from a higher gross margin and restrained growth in selling, general and administrative expenses. However, it should be noted that Other Income of ¥7.2B includes temporary factors such as gains on loss of control of subsidiaries and gains on sales of crypto assets.

Factors Affecting Performance

【Revenue】Revenue was ¥92.0B, representing a year-on-year increase of +292.8%. By segment, the Consulting Business generated ¥35.3B (38.4% of total revenue), the Nail Business ¥23.8B (25.9%, YoY +2.6%), the Healthcare Business ¥17.2B (18.7%), and the Investment & Advisory Business ¥15.6B (17.0%). The primary driver of revenue growth was that the three businesses other than the existing Nail Business newly recognized external revenue.

【Profit and Loss】Operating Income improved significantly to ¥44.1B (¥-0.8B in the previous year), with an operating margin of 48.0% (-3.2% in the previous year). The gross profit margin was 54.0%, while SG&A expenses were ¥12.2B, remaining well below the pace of revenue growth; fixed-cost absorption drove the improvement in profitability. Against Profit Before Tax of ¥45.0B, Net Income was ¥29.6B, with income taxes of ¥15.4B (effective tax rate of 34.2%) accounting for the difference. By segment profit, the Investment & Advisory Business made the largest contribution at ¥21.1B, followed by the Healthcare Business at ¥11.7B and the Consulting Business at ¥11.6B, while the Nail Business remained at ¥1.2B, indicating a significant profitability gap. Revenue and profits increased.

Segment Analysis

Of total reported segment profit of ¥45.6B, the Investment & Advisory Business made the largest contribution at ¥21.1B (46.2% of total, profit margin of 135.0%). The Healthcare Business generated revenue of ¥17.2B and profit of ¥11.7B, representing an exceptionally high profit margin of 67.8%, while the Consulting Business generated external revenue of ¥35.3B and profit of ¥11.6B, for a profit margin of 33.0%. The Nail Business generated revenue of ¥23.8B and profit of ¥1.2B, with a profit margin of only 5.1%, clearly demonstrating the profitability gap between the existing and new businesses. After deducting company-wide adjustments of ¥-1.5B, consolidated Operating Income was ¥44.1B. It should be noted that the high profit margins of the Healthcare and Investment & Advisory Businesses are susceptible to the timing and scale of individual projects.

Key Financial Indicators

【Profitability】Operating margin of 48.0%, Net Income margin of 32.2%, and ROE of 26.4% (annualized) all improved significantly from negative levels in the same period of the previous year. EBITDA was ¥46.3B, and the EBITDA margin was 50.3%, indicating strong pre-depreciation earnings power.【Cash Flow Quality】Against Operating Cash Flow (OCF) of ¥23.7B, Net Income was ¥29.6B, resulting in an OCF-to-Net-Income ratio of only 0.80x. The primary factor was a ¥19.9B increase in trade receivables, indicating room for improvement in cash conversion of earnings.【Investment Efficiency】Total asset turnover was approximately 0.54x and financial leverage was 1.53x. The increase in ROE was primarily attributable to the high Net Income margin, with limited reliance on leverage.【Financial Soundness】While the Equity Ratio improved to 65.4% (55.1% in the previous year), current assets of ¥67.4B were below current liabilities of ¥72.4B, resulting in a current ratio of 93.2%, below 100%. Intangible assets of ¥141.1B accounted for 61.8% of total assets, making concentration in the asset composition a monitoring point.

Cash Flow Analysis

Operating Cash Flow was positive at ¥23.7B, a significant increase from ¥16.5B in the previous year, but the ratio to Net Income of ¥29.6B was 0.80x. The ¥19.9B increase in trade receivables restrained cash conversion, while a ¥15.4B increase in trade payables provided support. Investing Cash Flow was an outflow of ¥118.0B, centered on large transactions involving the acquisition of intangible assets of ¥237.0B and sales of ¥110.8B, while capital expenditures were ¥0.3B and investment in tangible assets remained low. Financing Cash Flow was positive at ¥120.8B, with investment funding raised through the issuance of shares of ¥104.0B, including the exercise of share acquisition rights, and the issuance of bonds of ¥70.0B (¥45.0B redeemed). Free Cash Flow was ¥-94.3B, indicating that large-scale intangible asset investments could not be funded solely through internal funds and that the company relied on external financing. Cash and cash equivalents accumulated to ¥34.5B.

Quality of Earnings

Operating Income of ¥44.1B includes Other Income of ¥7.2B (7.8% of revenue). The statement of cash flows confirms gains associated with the loss of control of subsidiaries and gains on sales of crypto assets, which are temporary factors. Accordingly, when evaluating the operating margin of 48.0% and Net Income margin of 32.2%, recurring business profits should be distinguished from temporary income. Financial income of ¥0.96B exceeded financial expenses of ¥0.12B but amounted to only 1.0% of revenue, indicating that non-operating gains and losses were not a primary driver of the earnings structure. The accrual ratio was 2.6%, below the warning level of 10%; however, the fact that OCF was below Net Income due to the increase in trade receivables should be noted when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥149.5B, Operating Income of ¥59.9B, and Net Income of ¥39.2B. Cumulative progress rates are 61.5% for Revenue, 73.7% for Operating Income, and 75.5% for Net Income. While profit progress has reached the standard 75% level, revenue progress is 13.5pt lower. The remaining amounts required in Q4 are Revenue of ¥57.6B, Operating Income of ¥15.8B, and Net Income of ¥9.6B. The required operating margin is 27.4%, below the cumulative actual figure of 48.0%, meaning that the earnings hurdle for achieving the forecast is relatively low. However, the dividend forecast for the current quarter has been revised, while the earnings forecasts themselves remain unchanged.

Shareholder Returns

The full-year dividend forecast is ¥1.0 per share, while the Q2 dividend paid was ¥0. The Payout Ratio against forecast full-year Net Income of ¥39.2B is estimated at approximately 13%. Share repurchases were small at ¥0.2B, and the Total Return Ratio, including dividends, also remained low. Cumulative Free Cash Flow for the current period was ¥-94.3B. While large-scale intangible asset investments continue, the assessment of dividend funding should consider the trend in OCF in addition to accounting profits.

Risk Factors

1. Liquidity Risk: The current ratio was 93.2%, below 100%, and cash of ¥34.5B provides limited coverage against total short-term financial and lease liabilities of ¥29.8B, including bonds of ¥25.0B. Monitoring of the refinancing and settlement status of short-term debt is required.

2. Intangible Asset Concentration Risk: Intangible assets of ¥141.1B accounted for 61.8% of total assets and increased sharply by +2,632.3% year on year. This reflects large-scale acquisition and disposal transactions, and if monetization falls short of plan, the resulting depreciation and impairment burden could have a significant impact on equity and profits.

3. Increase in Trade Receivables and Cash Conversion Risk: Accounts receivable increased sharply to ¥28.2B (前年比+519.4%), resulting in annualized DSO of 84 days. The OCF-to-Net-Income ratio remained at only 0.80x, indicating that the pace of cash conversion was relatively slow compared with earnings growth.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The company's profitability metrics significantly exceed the industry median and are outstanding even within the industry.

Growth and Capital Efficiency

Due to the recognition of external revenue from new businesses, the growth rate is exceptionally high within the industry.

※Source: Compiled by the company

Key Takeaways from the Financial Results

1. A pronounced structural transformation of the business portfolio is underway. Whereas the traditional core Nail Business has a profit margin of 5.1%, highly profitable new businesses such as Healthcare (67.8%) and Investment & Advisory (135.0%) now form the center of profit generation. The repeatability of these profit margins will determine the future earnings structure.

2. While the Equity Ratio increased to 65.4% through an equity offering and bond issuance, Free Cash Flow was ¥-94.3B due to large-scale intangible asset transactions. The recovery of investment in intangible assets and the progression of short-term funding conditions, including the current ratio of 93.2%, will remain ongoing points of attention.

3. While full-year progress has reached standard levels on the profit side, revenue progress is below plan at 61.5%. The pace at which projects are recognized by each business in Q4 will be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥45–¥47 at Cost of Equity ±1%; ¥45–¥47 at ω±0.1.

Note:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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