INCLUSIVE Holdings Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.95B
• Operating Income: ¥-376M
• Net Income: ¥-352M
• EPS: ¥-24.03

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: Weak FY2026 Q2 with revenue contraction and a deep operating loss, but liquidity remains ample to navigate the downturn. Revenue was 19.51 (100M JPY), down 12.9% YoY, while gross profit was 6.40, implying a gross margin of 32.8%. SG&A reached 10.16, or 52.1% of sales, driving operating income to -3.76 and an operating margin of -19.3%. Ordinary income was -3.75 and net income was -2.41, equating to a net margin of -12.3%. Depreciation and amortization totaled 0.27, placing EBITDA at -3.49 and an EBITDA margin of -17.9%. Operating cash flow was -2.72, slightly better than net income (OCF/NI = 1.13x), indicating losses are not purely non-cash but cash burn is marginally less severe than accounting losses. Cash and deposits were 17.60 against current liabilities of 8.62, supporting a strong current ratio of 285%. Total assets were 32.71 and total equity 17.27, yielding financial leverage of 1.89x; debt-to-equity was 0.89x. Interest expense was modest at 0.03, but interest coverage is deeply negative (-115x) due to operating losses. Retained earnings stood at -0.80, indicating an accumulated deficit, which constrains dividend capacity. Working capital was healthy at 15.97, aided by cash reserves, and short-term loans were 1.80, manageable against liquidity. With investing cash flows unreported, a proxy free cash flow (OCF - Capex) is about -2.84, indicating continued cash consumption. Margin trend analysis in basis points versus last year is not possible due to missing prior-period margin data, but current cost structure suggests negative operating leverage as revenue declined faster than SG&A adjusted. The balance sheet provides a runway to execute restructuring or revenue recovery, but profitability restoration is urgent. Forward-looking, stabilization requires either a revenue rebound or cost realignment to bring SG&A closer to gross profit, with break-even likely requiring several hundred basis points of margin improvement or meaningful top-line recovery. Data gaps (e.g., investing CF, SG&A breakdown, AR) limit granularity, but the direction of travel is clear: defensive liquidity posture, offensive margin repair needed.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-12.3%) × 0.596 × 1.89 ≈ -13.9%, matching the reported figure. The dominant drag is the net margin at -12.3%, as asset turnover of 0.596 and leverage of 1.89x are within a typical range for an asset-light services business. Business driver: a 12.9% YoY revenue decline paired with SG&A of 10.16 (52.1% of sales) overwhelmed gross profit of 6.40, yielding an operating margin of -19.3%. This indicates negative operating leverage—fixed/semi-fixed costs not flexing down with revenue. Sustainability: the margin shortfall is likely cyclical/operational rather than structural if revenue normalizes or costs are reduced; however, absent a cost reset, the loss profile could persist. Warning signs: SG&A scale (52.1% of sales) materially exceeds gross profit (32.8% margin), implying an unsustainable cost-to-income mix; we also flag that revenue is shrinking (-12.9% YoY) with no evidence that expenses contracted at a similar pace (SG&A level data vs prior period unavailable but clearly high relative to sales).

Growth Assessment

Top-line declined 12.9% YoY to 19.51, indicating demand softness or project timing slippage. Gross margin at 32.8% is reasonable for digital/media services but insufficient given current SG&A intensity. Operating margin at -19.3% underscores negative operating leverage; return to break-even would require either mid-teens revenue growth at current cost base or a material SG&A reset. Non-operating items were immaterial (net +0.01), so earnings are driven by the core business. With ROIC estimated at -67.7% (likely reflecting losses vs a small invested capital base), capital efficiency is currently very weak. Outlook hinges on revenue stabilization and cost actions; absent disclosure on backlog, new client wins, or restructuring, near-term profit visibility is low. Given cash of 17.60, the company has time to implement measures, but growth investments may be constrained while losses persist.

Financial Health

Liquidity is strong: current ratio 2.85x and quick ratio 2.75x, with cash of 17.60 covering 204% of current liabilities (8.62). Solvency is moderate: debt-to-equity 0.89x and total liabilities 15.44 vs equity 17.27. No explicit red flags on thresholds (Current Ratio > 1.0; D/E < 2.0). Maturity mismatch risk appears low: short-term loans 1.80 and accounts payable 2.33 are covered by cash; current assets 24.59 far exceed current liabilities. Long-term loans are 4.05, manageable given cash and equity base, but sustained losses could erode buffers. Interest coverage is highly negative due to operating losses, indicating vulnerability if rates rise or refinancing is needed. Off-balance sheet obligations are not reported; no information to assess guarantees or lease commitments beyond what may be included in liabilities.

Cash Flow Quality

OCF was -2.72 versus net income -2.41, yielding OCF/NI of 1.13x—above the 0.8 threshold, indicating cash flow does not materially trail accounting earnings; nevertheless, both are negative. Investing cash flows are unreported; using a proxy FCF = OCF - Capex suggests about -2.84, implying continued cash burn. Working capital details (receivables, payables changes) are not disclosed, limiting assessment of timing effects or potential working capital pull-forward. No obvious signs of aggressive working capital management from available data, but the cash consumption is primarily from operating losses. Sustainability: at the current burn rate (~2.8 per half-year on proxy FCF), existing cash of 17.60 provides a multi-year runway, assuming no step-up in capex or losses; however, this is sensitive to revenue trends and cost actions.

Dividend Sustainability

Dividend information is unreported for the period, and retained earnings are negative (-0.80), indicating limited capacity for distributions under typical JGAAP constraints. With proxy FCF negative (~-2.84) and operating losses ongoing, internal coverage for dividends is absent. Policy outlook likely prioritizes balance sheet preservation and business turnaround over shareholder distributions in the near term; any payout would likely require a return to sustained profitability or use of capital surplus subject to legal and policy considerations.

Risk Assessment

Business Risks:

• Revenue contraction (-12.9% YoY) amid fixed cost base causing negative operating leverage
• Client demand and project timing risk typical of digital/media services
• Execution risk on cost restructuring needed to align SG&A (52.1% of sales) with gross profit (32.8% margin)
• Competitive pressure potentially compressing pricing and utilization

Financial Risks:

• Sustained operating losses leading to continued cash burn (proxy FCF ~ -2.84)
• Interest coverage deeply negative (-115x), leaving little tolerance for higher financing costs
• Potential equity erosion if losses persist, tightening covenant or refinancing flexibility
• Limited retained earnings (-0.80) restricting dividend flexibility

Key Concerns:

• ROE -13.9% and ROIC -67.7% highlight severe capital inefficiency
• High dependence on cash reserves to fund operations; investing CF unknown
• Data gaps (receivables, investing CF, SG&A detail) limit visibility on structural vs timing issues
• If revenue mix has shifted to lower-margin work, gross margin recovery may be challenging

Investment Implications

Key Takeaways:

• Top-line down 12.9% with operating margin -19.3% indicates significant negative operating leverage
• Cost base misaligned: SG&A at 52.1% of sales exceeds gross profit level
• Liquidity is strong (cash 17.60; current ratio 2.85x), providing runway
• Interest coverage highly negative due to losses; leverage moderate at 0.89x D/E
• Cash burn persists (proxy FCF ~ -2.84) but manageable in the near term given cash balance
• Capital efficiency depressed (ROE -13.9%, ROIC -67.7%), necessitating operational turnaround

Metrics to Watch:

• Quarterly revenue trajectory and backlog/new orders
• SG&A run-rate and headcount actions; SG&A-to-sales ratio
• Gross margin movements and pricing/mix changes
• Operating cash flow and working capital swings (AR and AP, when disclosed)
• Interest coverage and any refinancing or loan covenant disclosures
• Retention of key clients and win rates in core service lines

Relative Positioning: Versus domestic digital/media service peers, the company currently lags on profitability (negative operating and EBITDA margins) but holds a stronger-than-average liquidity cushion. Leverage is moderate, offering some flexibility, yet capital efficiency is well below peers until margins are restored.

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