Interworks Confidence Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.72B
• Operating Income: ¥676M
• Net Income: ¥416M
• EPS: ¥67.06

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

Verdict: Solid topline growth with slight margin compression and still-strong cash generation; balance sheet remains net-cash and resilient. Revenue rose 8.8% YoY to 47.16, while operating income declined 2.8% YoY to 6.76, indicating negative operating leverage in the half. Gross profit was 22.36, yielding a gross margin of 47.4%. Operating margin stood at 14.3% this quarter. Ordinary income was 6.56 (−6.3% YoY), and net income was 4.15 (−5.4% YoY), implying some pressure below the operating line and/or a higher tax burden. Using the disclosed YoY rates, we estimate prior-period revenue of ~43.34 and operating income of ~6.96; thus, operating margin compressed by about 172 bps YoY (from ~16.1% to ~14.3%). Likewise, estimated net margin contracted by roughly 132 bps YoY (from ~10.1% to 8.8%). Cash flow quality was strong: operating cash flow (8.31) was roughly 2.0x reported net income (4.15), supporting earnings quality. The balance sheet remains highly liquid with a current ratio of 357% and cash and deposits of 43.70 far exceeding total liabilities of 15.52, indicating substantial net cash. Financial leverage is modest (equity/asset base large) with a calculated leverage factor of 1.25x and a D/E ratio of 0.25x. Interest coverage is extremely strong at ~892x given minimal interest expense, signaling negligible refinancing risk. Intangibles including goodwill are material (intangible assets 17.51 of which goodwill 16.85), elevating impairment risk if growth slows. Non-operating items had limited impact this period (non-operating income 0.07 vs expenses 0.27). The effective tax rate was relatively high at 36.7%, contributing to the steeper drop from operating income to net income. Forward-looking, sustaining double-digit ROE will likely require stabilizing margins (SG&A discipline) and leveraging revenue growth, given low balance sheet leverage. Near term, strong cash and low capex needs provide flexibility for shareholder returns and bolt-on investments, but the disclosed payout ratio (105.1%) warrants monitoring for sustainability if earnings remain under pressure.

Profitability Analysis

ROE decomposition: ROE (6.8%) = Net Profit Margin (8.8%) × Asset Turnover (0.613) × Financial Leverage (1.25x). The main drag YoY appears to be the margin leg, as operating income fell 2.8% despite 8.8% revenue growth, implying negative operating leverage and a ~172 bps operating margin compression (from ~16.1% to ~14.3%). Asset turnover is reasonable for a services-oriented model at 0.613, and leverage is low at 1.25x, so margin movements dominate ROE changes. Business drivers likely include higher SG&A intensity (details unreported) and possibly a higher effective tax rate (36.7%), pressuring net margin by an estimated ~132 bps YoY. Gross margin at 47.4% suggests underlying pricing/mix remained healthy; the squeeze likely came from operating expenses scaling faster than revenue. Sustainability: margin headwinds may be reversible if SG&A productivity improves and revenue scale effects resume, but absent evidence of cost controls, near-term margin expansion is uncertain. Watch for SG&A growth outpacing revenue in subsequent quarters as a warning sign of structural cost creep. With minimal interest burden and conservative leverage, financial structure contributes little to ROE change; improving ROE thus depends mostly on margin recovery and better asset turnover.

Growth Assessment

Revenue growth of 8.8% YoY indicates solid demand momentum. However, operating income declined 2.8% YoY, revealing negative operating leverage in the period. Non-operating items had a small net negative impact (income 0.07 vs expenses 0.27). The effective tax rate of 36.7% further compressed net profit, resulting in a 5.4% YoY decline in net income. EBITDA was 7.15 with an EBITDA margin of 15.2%, below the prior implied operating margin level, indicating some dilution from overhead. With capex at only 0.01 and robust OCF, growth is likely more dependent on headcount productivity, pricing, and utilization rather than fixed investment. Outlook: sustaining high-single-digit revenue growth while stabilizing the SG&A ratio should enable margin recovery; otherwise, growth could continue to translate weakly to profit. Watch for any pricing or mix commentary and client demand trends given HR/services cyclicality. The reported ROIC of 24.1% (methodology not disclosed here) is strong, implying value creation if margins hold, though this may be period-specific or annualized; confirmation in subsequent quarters is needed.

Financial Health

Liquidity is very strong: current ratio 357% and quick ratio 357%, with cash and deposits of 43.70 versus current liabilities of 15.38. No warning on current ratio (<1.0) or excessive leverage (D/E 0.25x) is indicated. Maturity profile risk is low: noncurrent liabilities are just 0.14 and reported long-term loans are minimal at 0.03; short-term borrowings are unreported, but cash exceeds total liabilities by ~28.18, implying net cash. Interest coverage is extraordinarily high (~892x), indicating negligible interest burden. Equity is 61.41 against total assets of 76.92, a conservative capital structure. Intangibles including goodwill (intangible 17.51 of which goodwill 16.85) are material relative to equity, introducing impairment risk if acquired units underperform. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 2.00x, which is strong and signals high earnings quality for the period. Free cash flow cannot be fully computed due to unreported investing cash flows; however, capex is de minimis at 0.01, suggesting maintenance needs are light. Financing cash outflow of −2.51 was comfortably covered by OCF of 8.31, leaving room for cash accumulation or reinvestment. Working capital appears supportive of cash generation given high cash and moderate receivables relative to liabilities; no signs of aggressive working-capital management are evident from the limited data. Given the strong cash position and low capex intensity, cash flow coverage of ordinary dividends would normally be robust, but dividend amounts are unreported here.

Dividend Sustainability

The calculated payout ratio is shown as 105.1%, which, if accurate on a comparable basis, would exceed the typical sustainability threshold (<60%) and thus warrant caution. However, total dividends and DPS by quarter are unreported, creating uncertainty about timing and basis (annual vs. interim vs. TTM). From a cash perspective, OCF (8.31) easily exceeded financing outflows (−2.51) this period, implying adequate liquidity to fund dividends. With minimal capex requirements, FCF coverage of dividends is likely healthy in cash terms, but long-term sustainability depends on stabilizing earnings and margins to keep the payout ratio within a prudent range. Policy outlook: with a strong net-cash balance sheet, the company has flexibility, but maintaining payouts above earnings would be risky if earnings pressure persists.

Risk Assessment

Business Risks:

• Operating margin pressure from SG&A growth outpacing revenue (+8.8% revenue vs −2.8% operating income).
• High effective tax rate (36.7%) reducing net profitability.
• Intangible asset concentration including goodwill (goodwill 16.85) raises impairment risk if acquired businesses underperform.
• Potential cyclical exposure to hiring and project demand typical of HR/services sectors.
• Client concentration risk and pricing pressure (not disclosed, but common to the sector).

Financial Risks:

• Payout ratio indicated at 105.1% suggests potential distribution pressure if earnings do not recover.
• Limited disclosure of investing cash flows obscures FCF stability and acquisition outlays.
• Leverage risk is low currently, but any debt-funded M&A would raise financial risk given goodwill levels.

Key Concerns:

• Negative operating leverage evidenced by ~172 bps YoY operating margin contraction.
• Net margin compression (~132 bps YoY) driven by costs and higher tax burden.
• Goodwill impairment sensitivity given material intangible assets relative to equity.

Investment Implications

Key Takeaways:

• Topline growth healthy at +8.8% YoY but profits lagged with −2.8% YoY operating income.
• Operating margin compressed ~172 bps YoY to ~14.3%; restoring cost discipline is key.
• Cash generation strong (OCF/NI 2.0x) and balance sheet firmly net cash.
• ROE of 6.8% is modest; improvement hinges on margin recovery more than leverage.
• Intangible-heavy balance sheet heightens impairment risk if growth slows.
• Dividend sustainability needs monitoring given the indicated 105.1% payout ratio.

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• OCF/Net income and working capital movements
• Effective tax rate normalization
• Goodwill impairment indicators and performance of acquired units
• Revenue growth by service line and pricing/mix
• ROE and ROIC consistency through the year

Relative Positioning: Relative to small-cap peers in HR/services, the company exhibits stronger liquidity and net-cash positioning with robust cash conversion, but weaker recent operating leverage and a higher implied payout ratio could constrain capital allocation flexibility unless margins stabilize.

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