Quants Research Institute Holdings,Inc. FY2026 Q2 Earnings Report

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Executive Summary

FY2026 Q2 (first half) results landed at Revenue ¥103.0B (YoY +¥26.4B +34.4%), Operating Income ¥30.2B (YoY +¥6.4B +26.6%), Ordinary Income ¥30.0B (YoY +¥7.6B +31.9%), and Net Income ¥19.1B (YoY +¥4.2B +27.9%). Revenue growth was driven by an increase in transactions in the core M&A Brokerage and rapid expansion of the Consulting Business, and the Operating Income margin remained high at 29.4% (prior year 31.2%). Gross margin fell to 58.6% (prior year 62.0%), down 340bp, but SG&A ratio improved to 29.2% (prior year 30.9%), an improvement of 170bp, avoiding a decline in profit. ROE remained high at 28.2%, Operating Cash Flow (OCF) was ¥34.0B, 1.78x Net Income, indicating strong cash backing of profits. Conversely, Free Cash Flow (FCF) was negative at ▲¥20.4B due to execution of large-scale capital expenditure of ¥53.3B, with borrowings accumulated to ¥61.4B to fund investments. Progress against the full-year forecast was Revenue 46.2%, Operating Income 52.3%, Net Income 56.0%, slightly ahead of the standard pace (50%) on profitability. This first half delivered growth investment front-loaded while maintaining profitability through the high-margin core business.

Drivers of Performance

[Revenue] Revenue of ¥103.0B (YoY +34.4%) was led by core M&A Brokerage at ¥85.2B (+20.1%) and Consulting at ¥16.6B (+194.2%). M&A Brokerage accounted for 82.8% of revenue, with an increase in deal count driving growth. Consulting, though small, expanded nearly threefold YoY, contributing to portfolio diversification. Operating lease remained small at ¥1.1B. Geographic split was not disclosed, but growth was achieved against a backdrop of a robust domestic M&A market.

[Profitability] Gross profit was ¥60.3B, with gross margin 58.6%, down 340bp from 62.0% a year earlier. Changes in deal mix and expansion of loss-making segments pressured gross margin. SG&A was ¥30.0B (SG&A ratio 29.2%), improving 170bp YoY as economies of scale emerged. Operating Income ¥30.2B (Operating margin 29.4%) increased 26.6% YoY, though margin contracted 180bp. Non-operating items were minor: financial income ¥0.1B, financial expenses ¥0.3B, other income/expenses ▲¥0.1B, leaving Ordinary Income ¥30.0B (+31.9%) roughly in line with Operating Income. Against Profit Before Tax ¥30.0B, corporate taxes were ¥10.9B (effective tax rate 36.4%), resulting in Net Income ¥19.1B (Net margin 18.5%). By segment, M&A Brokerage posted Operating Income ¥33.5B (margin 39.3%) and drove company profit, while Consulting had an operating loss of ▲¥2.5B and Operating Lease also recorded a loss of ▲¥0.5B, diluting overall margins. In conclusion, revenue and profit increased driven by core business profitability, but gross margin decline and expansion of loss-making segments limited margin improvement.

Segment Analysis

M&A Brokerage recorded Revenue ¥85.2B (YoY +20.1%) and Operating Income ¥33.5B (YoY +29.0%), maintaining a very high Operating margin of 39.3%. As the core business accounting for 82.8% of revenue and the majority of Operating Income, it achieved revenue and profit growth through increased deal flow and efficiency gains. Consulting expanded rapidly to Revenue ¥16.6B (YoY +194.2%) but continued to incur an operating loss of ¥2.5B (margin ▲14.9%). In the launch phase, personnel investment and fixed-cost burdens are front-loaded. Operating Lease recorded Revenue ¥1.1B and an operating loss of ¥0.5B (margin ▲44.6%), remaining small and loss-making. The high profitability of the core M&A Brokerage supports overall results, while early profitability of Consulting is the key to improving consolidated margins.

Key Financial Metrics

[Profitability] Operating margin was 29.4%, reflecting gross margin 58.6% less SG&A ratio 29.2%, consistent with a high-margin business model. Net margin was 18.5%, with an effective tax rate of 36.4% weighing on after-tax earnings. ROE was high at 28.2%, composed as Net margin 18.5% × Asset Turnover 0.622 × Financial Leverage 2.45x. EBIT margin equals Operating margin at 29.4%. [Cash Quality] Operating Cash Flow ¥34.0B was 1.78x Net Income ¥19.1B, and OCF/EBITDA ratio was 1.00x, indicating strong cash backing of profits. The accrual ratio was ▲9.0%, showing accounting profits are below cash generation—an overall healthy state. [Investment Efficiency] Asset Turnover was 0.622x, suppressed by asset increases from large investments (¥165.5B). Tangible fixed asset turnover was 1.91x, with investments not yet fully operational. [Financial Soundness] Equity Ratio was 40.9%, down from 62.8% a year earlier due to increased borrowings for growth investment. Debt/Equity was 0.91x; interest-bearing debt ¥61.4B versus EBITDA ¥33.8B gave Debt/EBITDA of 1.81x, within acceptable range. Interest coverage (EBIT/financial expenses) was approximately 91x, indicating strong interest-bearing capacity. Current ratio is roughly 1.4x and generally healthy, but short-term borrowings of ¥38.2B represent a high dependency, with short-term liabilities ratio at 62.2%, making refinance management important.

Cash Flow Analysis

Operating Cash Flow was ¥34.0B, a YoY increase of +207.9%, 1.78x Net Income ¥19.1B. OCF subtotal (before working capital changes) was ¥40.3B; working capital changes contributed positively with accounts receivable collections ¥3.4B, accounts payable increase ¥0.4B, and other ¥2.2B. After paying corporate taxes ¥6.1B, interest paid ¥0.3B, and lease payments ¥2.4B, substantial cash was still generated. Investing Cash Flow was ▲¥54.4B, mainly due to large capital expenditures of ¥53.3B; with depreciation ¥3.6B, the Capex/Depreciation ratio was 14.8x, showing aggressive investment. Purchase of marketable securities ¥1.0B also weighed on investing cash flow. Financing Cash Flow was a positive ¥56.2B, driven by net increase in short-term borrowings ¥24.7B and long-term borrowings procured ¥39.9B, less long-term debt repayments ¥3.4B and dividend payments ¥2.6B—indicating investments were funded by borrowings. Free Cash Flow was negative at ▲¥20.4B, but this reflects front-loaded growth investments, and the strong OCF supports future recovery. Cash and cash equivalents rose from ¥41.2B at the beginning of the period by ¥35.9B to ¥77.1B, ensuring ample liquidity.

Quality of Earnings

Non-operating income/expenses were minor: financial income ¥0.1B, financial expenses ¥0.3B, other income ¥0.2B, other expenses ¥0.2B, making Ordinary Income ¥30.0B nearly identical to Operating Income ¥30.2B, indicating earnings driven by core operations. No extraordinary items were disclosed, and there were no one-time effects on Net Income ¥19.1B. The effective tax rate of 36.4% is somewhat high, suppressing net margin relative to Profit Before Tax ¥30.0B. Comprehensive income ¥19.2B was nearly the same as Net Income ¥19.1B, with other comprehensive income limited to ¥0.1B (foreign currency translation adjustments, etc.), so divergence between comprehensive income and net income is limited. OCF/Net Income was 1.78x; OCF/EBITDA 1.00x; accrual ratio ▲9.0%—these indicate high-quality earnings with no signs of accounting profit manipulation. With depreciation ¥3.6B versus OCF subtotal ¥40.3B, cash generation materially exceeds non-cash charges. Earnings quality is rated favorable across recurrence, sustainability, and cash generation.

Forecasts & Guidance

Full-year guidance was kept at Revenue ¥222.9B, Operating Income ¥57.8B (YoY +20.9%), and Net Income ¥34.1B. First-half progress against the full-year forecast was Revenue 46.2%, Operating Income 52.3%, Net Income 56.0%, with profitability slightly front-loaded versus the standard pace (50%). Despite a first-half gross margin decline, Operating Income progress was maintained via SG&A efficiency; if deal accumulation and cost controls materialize in the second half, full-year targets are attainable. Revenue progress of 46.2% slightly under the norm, but acceptable given that M&A deal recognition tends to skew to the second half. Forecasts were revised this quarter to reflect first-half results and improve accuracy. Dividend forecast remains zero for the full year, consistent with a capital allocation policy prioritizing growth investments. Key to achieving full-year targets will be monetization of investment projects in the second half, profitability improvement in Consulting, and recovery in deal unit prices and gross margins.

Shareholder Returns

Dividends were zero for both interim and full year, with a Payout Ratio of 0%. Under a capital allocation policy prioritizing growth investment, internal reserves are being strengthened to secure investment funding. Share buybacks in the first half were marginal at ¥0.0B, so Total Return Ratio is effectively 0%. Although OCF is ample at ¥34.0B, large capex of ¥53.3B led to negative FCF ▲¥20.4B, indicating a phase favoring investment recovery and business expansion over shareholder returns. Cash and deposits ¥77.1B, Equity ¥67.6B, and ROE 28.2% indicate a solid financial base; should investments begin to monetize, there is scope for FCF to turn positive and dividends to resume. A policy shift on dividends will hinge on visible monetization of investments and stable FCF generation.

Risk Factors

1. Revenue concentration risk: M&A Brokerage accounts for 82.8% of revenue and the majority of Operating Income, creating an extreme concentration risk whereby deal count, pricing, and competitive dynamics can materially affect overall performance. Sustaining the deal pipeline and fee rates is a challenge; market deterioration could lead to significant profit decline.

2. Gross margin decline and delays in monetizing new businesses: Gross margin fell from 62.0% to 58.6% (▲340bp), and Consulting (Operating loss ¥2.5B) and Operating Lease (Operating loss ¥0.5B) remain loss-making. If Consulting does not turn profitable or Operating Lease does not improve, consolidated Operating margin could trend downward. Changes in deal mix or intensified price competition could further pressure gross margin.

3. Short-term liability bias and refinancing risk: Short-term borrowings ¥38.2B and current liabilities ¥69.0B result in a short-term liabilities ratio of 62.2%, indicating high short-term funding dependency. While cash ¥77.1B and strong OCF secure near-term liquidity, changes in financial markets or rising interest rates could increase refinancing costs and constrain cash management. Refinancing long-term debt of ¥23.2B and improving maturity alignment are challenges.

Industry Benchmark (Reference, Company Data)

Profitability & Returns

Profitability substantially exceeds the industry median, achieving top-tier margins within the IT & Communications sector.

Growth & Capital Efficiency

Revenue growth also exceeds the industry median by +13.4pt, establishing the company as a high-growth enterprise.

※Source: Company compilation

Key Points from the Results

1. The high profitability of the core M&A Brokerage (margin 39.3%) and increased deal flow drove revenue and profit growth while maintaining high capital efficiency (ROE 28.2%). OCF is 1.78x Net Income and OCF/EBITDA 1.00x, indicating very strong cash backing of earnings and high quality of earnings. In the short term, gross margin decline (▲340bp) pressured margins, but SG&A ratio improvement (▲170bp) absorbed the impact to secure Operating margin 29.4%.

2. Front-loaded large capital expenditure of ¥53.3B (Capex/Depreciation 14.8x) resulted in negative FCF ▲¥20.4B, but borrowings were used flexibly to fund investments while maintaining cash balance ¥77.1B. Successful monetization of investment projects and full operation of tangible fixed assets should improve Asset Turnover and ROIC. Heavy dependence on short-term borrowings ¥38.2B (short-term liabilities ratio 62.2%) means refinance management and maturity alignment are key to financial stability.

3. Turning Consulting profitable and improving deal mix are catalysts for gross margin recovery and expansion of corporate margins in the second half and beyond. Progress against the full-year forecast shows Operating Income 52.3% and Net Income 56.0% of targets, slightly above standard pace; if deal accumulation and cost efficiency materialize in the second half, full-year targets are within reach. High revenue concentration (M&A 82.8%) remains a risk factor, and early establishment of complementary revenue sources and sustained deal pipeline are critical for medium-term growth sustainability.

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This report is an AI-generated earnings analysis based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions should be made at your own responsibility, and, if necessary, after consulting a professional.