Axis Consulting Corporation FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.46B
• Operating Income: ¥-255M
• Net Income: ¥-179M
• EPS: ¥-35.77

Income Statement

Balance Sheet

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

Axis Consulting Co., Ltd. (TSE: 93440) reported FY2026 Q1 standalone results under JGAAP with solid top-line expansion but continued operating losses. Revenue grew 19.2% year over year to ¥1,456 million, evidencing healthy demand and successful client acquisition or pricing. Gross profit was ¥720 million, implying a gross margin of 49.5%, which is robust for a professional services/HR-related business model. Despite strong gross profitability, the company posted an operating loss of ¥255 million (operating margin -17.5%), showing that elevated selling, general and administrative expenses outweighed gross profit in the quarter. Ordinary income was ¥-257 million, broadly in line with operating income, indicating limited non-operating gains or losses. Net income was ¥-179 million (EPS ¥-35.77), with an income tax expense of ¥74 million recorded despite the pre-tax loss, likely reflecting items such as non-deductible expenses, prior period adjustments, or timing differences. DuPont decomposition shows a net profit margin of -12.29%, asset turnover of 0.367x, and financial leverage of 1.37x, resulting in a calculated ROE of -6.19%. The substantial gross margin relative to the negative operating margin indicates that near-term profitability hinges on managing fixed and semi-fixed SG&A. Based on gross margin of 49.5% and implied quarterly SG&A of roughly ¥975 million, breakeven revenue is estimated around ¥1.97 billion per quarter; current revenue is ~¥513 million below that threshold, suggesting operating leverage potential as scale increases. Liquidity appears strong with a current ratio of 453.5% and working capital of ¥3,104 million, supported by low balance sheet leverage (debt-to-equity 0.41x). Total assets were ¥3,966 million and total equity ¥2,890 million, implying a high equity buffer even though the reported equity ratio was not disclosed. Cash flow statement items were not reported this quarter, limiting assessment of cash generation and cash runway. No dividend was reported (DPS ¥0), appropriate given the current net loss profile. Overall, the quarter demonstrates strong growth capacity and healthy gross economics but underscores the need for cost discipline and scaling to convert revenue into positive operating income.

Profitability Analysis

ROE decomposition (DuPont): net margin -12.29% × asset turnover 0.367 × financial leverage 1.37 = ROE -6.19%. The negative net margin is the primary driver of the negative ROE, not leverage (which is modest) or asset efficiency. Gross margin is 49.5% (gross profit ¥720m on revenue ¥1,456m), a solid level that suggests pricing power and/or favorable mix. Operating margin is -17.5% (operating loss ¥255m), indicating SG&A intensity; implied SG&A and other operating costs are ~¥975m (¥720m gross profit minus ¥-255m operating income), or ~67.0% of sales. Ordinary income tracks operating income closely (¥-257m vs ¥-255m), suggesting limited reliance on non-operating items. The effective tax charge of ¥74m despite losses dampened net results, further pressuring net margin. Operating leverage: with nearly 50% gross margin, incremental revenue should translate meaningfully to operating profit once fixed costs are covered; every 1 percentage point reduction in SG&A-to-sales potentially improves operating margin by roughly 1 point in the near term. Estimated quarterly breakeven revenue is ~¥1.97bn at the current gross margin, implying a meaningful but addressable scale gap.

Growth Assessment

Revenue grew 19.2% YoY to ¥1,456m, indicating sustained client demand and/or improved pricing in Q1. The revenue base remains below the estimated operating breakeven level, but the trajectory is favorable for unlocking operating leverage if growth continues. Gross profit expansion (implied by stable 49.5% gross margin) supports the quality of growth; there is no evidence of gross margin dilution in the provided data. Profit quality is constrained by SG&A scale-up; the operating loss narrowed YoY (+66.1% YoY improvement indicates a smaller loss), which suggests either some early cost efficiencies or better revenue density per head. Ordinary income closely mirroring operating income implies the core business, not financial items, dictates performance. Near-term outlook depends on maintaining double-digit revenue growth while controlling cost growth to close the ~¥513m quarterly revenue gap to breakeven. Key areas to watch for sustainability: client concentration, repeat/retainer mix versus one-off placements, and fee rate stability. With taxes recognized despite losses, normalized run-rate profitability may be better than reported net income suggests once these timing/structural effects normalize. Absent cash flow data and order/backlog metrics, visibility is limited; however, the combination of high gross margin and growing revenue supports a constructive medium-term margin trajectory if SG&A growth moderates.

Financial Health

Total assets were ¥3,966m and total equity ¥2,890m, implying a strong equity cushion; liabilities were ¥1,189m (debt-to-equity 0.41x). Liquidity is ample: current assets ¥3,982m and current liabilities ¥878m yield a current ratio of 453.5% and working capital of ¥3,104m; quick ratio is the same due to no reported inventories. Solvency risk appears low given modest leverage and sizeable equity. Interest expense was not reported and ordinary profit is negative, making interest coverage not meaningful this quarter, but the low leverage reduces refinance pressure. The reported equity ratio was not disclosed; based on totals, equity represents the majority of assets, underscoring balance sheet resilience. Overall, the company has capacity to absorb operating losses in the near term, provided cash balances (not disclosed) are sufficient.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed for the quarter, so OCF/NI and FCF cannot be evaluated from actual cash data. The reported OCF/Net Income ratio of 0.00 and FCF of 0 should be interpreted as not available, not actual zeros. Earnings quality from an accruals perspective cannot be assessed without working capital and depreciation details (depreciation not disclosed). Working capital is substantial at ¥3,104m, but the composition (cash, receivables, payables) is not available, limiting insight on collections and DSO. With gross margin at 49.5% and negative operating income, cash burn is plausible in the absence of non-cash expenses; confirmation awaits OCF disclosure. Key watch items: cash and equivalents level, receivables growth relative to sales, and changes in payables and accrued expenses.

Dividend Sustainability

No dividend was reported for the period (DPS ¥0; payout ratio 0.0%). Given negative net income (¥-179m) and unreported free cash flow, distributions would be constrained near term. The balance sheet shows strong equity and low leverage, which offers optionality for future shareholder returns once profitability and cash generation stabilize. Policy outlook will hinge on achieving operating breakeven and demonstrating positive, repeatable operating cash flow; until then, maintaining a conservative stance is consistent with fundamentals.

Risk Assessment

Business Risks:

• Sensitivity to hiring cycles and macro conditions affecting consulting and IT services demand
• Fee rate pressure and competitive intensity in professional staffing/career advisory
• Execution risk in scaling headcount and maintaining consultant productivity
• Potential client concentration and variability in placement/project timing
• Talent acquisition and retention costs impacting SG&A
• Regulatory or compliance changes affecting labor intermediation and contracting practices

Financial Risks:

• Operating losses persisting if revenue growth slows or SG&A remains elevated
• Cash burn risk given lack of reported OCF and negative operating income
• Tax expense despite losses reducing reported net income and equity accretion
• Limited non-operating income to offset operating performance
• Potential working capital swings (receivables) in a growth phase

Key Concerns:

• Need to bridge ~¥513m quarterly revenue gap to reach operating breakeven at current gross margin
• High SG&A-to-sales ratio (~67%) suppressing operating margin
• Absence of cash flow disclosures limiting visibility on liquidity runway
• Tax charges recorded despite pre-tax loss

Investment Implications

Key Takeaways:

• Top-line growth is strong at +19.2% YoY with a solid 49.5% gross margin, indicating healthy underlying unit economics.
• Operating loss narrowed YoY to ¥-255m, but SG&A intensity remains the profitability bottleneck.
• Balance sheet strength (D/E 0.41x, substantial working capital) provides resilience during the scaling phase.
• Non-operating items are minimal; core business performance drives earnings.
• Cash generation cannot be assessed this quarter due to lack of cash flow disclosure.

Metrics to Watch:

• SG&A-to-sales ratio and its trajectory each quarter
• Revenue growth run-rate versus the ~¥1.97bn quarterly breakeven threshold
• Gross margin stability around ~50%
• Operating cash flow and cash balance once disclosed
• Receivables days and collection trends
• Headcount/productivity KPIs (revenue per consultant or per FTE)
• Ordinary income versus operating income gap (to monitor non-operating volatility)

Relative Positioning: Compared to domestic HR/professional services peers, the company exhibits higher growth momentum with strong gross margins but lags on operating profitability due to elevated SG&A. Leverage is lower than many peers, offering balance sheet flexibility, but the lack of disclosed cash flow data tempers near-term visibility.

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