Interspace Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥8.85B
• Operating Income: ¥371M
• Net Income: ¥-61M
• EPS: ¥32.82

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 top-line growth but clear margin compression and only modest ROE, with cash flow broadly supportive yet free cash flow negative due to investment outlays. Revenue rose 11.8% YoY to 88.46, while operating income fell 33.2% to 3.71, indicating cost pressure despite growth. Gross profit was 73.10, yielding a high gross margin of 82.6%, consistent with a performance marketing/affiliate mix with low cost of sales. SG&A was 69.39, consuming 78.5% of sales and driving operating margin down to 4.2%. Based on back-calculation, prior-year operating margin was about 7.0%, implying approximately 280 bps of operating margin compression. Ordinary income declined 18.6% to 3.99, with an ordinary margin of 4.5% vs roughly 6.2% a year ago (about 170 bps compression). Net income increased 246.1% to 2.06 (net margin 2.33%), likely helped by a lower baseline last year and non-operating contributions (0.39 this period), despite a high effective tax rate of 43%. Earnings quality is mixed: operating cash flow of 1.69 covers 82% of net income (near our 0.8 threshold), but free cash flow was negative at -1.64 due to heavier investing cash outflows (-3.33) than capex alone (-0.63). Balance sheet resilience is a positive: cash and deposits of 55.94 and receivables of 36.04 comfortably cover current liabilities of 54.82, supporting a current ratio of 173%. Leverage appears moderate with a D/E of 0.98x, though interest-bearing debt details are unreported, and trade payables (45.88) are a sizable funding source. ROE is a modest 3.7% (DuPont: 2.3% margin × 0.791 turnover × 1.98x leverage), below typical domestic internet peers. Non-operating income of 0.39 (including equity method income of 0.06) cushioned ordinary income but is not a primary driver. The discrepancy between calculated payout ratio (101.5%) and reported payout (3.2%) plus unreported DPS limits dividend conclusions; data constraints are material here. Forward-looking, sustaining double-digit revenue growth without SG&A re-acceleration is key to re-expanding margins and improving ROE. We will watch whether investments behind the negative FCF translate into growth and profitability improvements. Overall, the quarter shows healthy demand but rising operating costs and elevated taxes suppressing bottom-line scalability, with adequate liquidity providing flexibility to execute on strategy.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 2.3% × Asset Turnover 0.791 × Financial Leverage 1.98x = ROE 3.7%. The component that changed most vs last year appears to be margin: operating income fell 33.2% while sales rose 11.8%, compressing operating margin from an estimated 7.0% to 4.2% (-280 bps). The business driver is SG&A intensity (69.39; 78.5% of sales), likely reflecting higher personnel/advertising/client acquisition costs and platform fees typical in digital marketing cycles. Non-operating items (0.39) provided some offset, but not enough to prevent ordinary margin compression (~-170 bps YoY). Asset turnover at 0.791 is typical for an asset-light ad/affiliate model and likely stable; leverage at ~2.0x is moderate. Sustainability: margin pressure could persist near term unless management slows SG&A growth or lifts take rates; the high gross margin offers headroom if operating discipline improves. Concerning trends: SG&A growth appears to have outpaced revenue growth (implied by margin compression), signaling negative operating leverage this quarter.

Growth Assessment

Revenue grew 11.8% YoY to 88.46, indicating solid demand in core advertising/affiliate businesses. Operating income declined 33.2% to 3.71, suggesting that growth was achieved at higher cost, possibly due to mix, client incentives, or rising traffic acquisition costs. Ordinary income fell 18.6% to 3.99, mitigated by non-operating income of 0.39 including equity method income of 0.06. Net income surged 246.1% to 2.06 from a low base (approx. 0.60 last year), despite a high 43% effective tax rate. EBITDA was 6.21 (7.0% margin), pointing to some cash earnings resilience even as operating margin compressed. Near-term outlook hinges on normalizing SG&A intensity and converting recent investment outflows (-3.33) into revenue and margin lift. Without SG&A control, incremental growth may continue to exhibit negative operating leverage; conversely, even modest SG&A discipline could re-expand operating margin toward prior levels (~7%).

Financial Health

Liquidity is sound: current ratio 172.9% and quick ratio 172.9% (no inventories reported). Cash and deposits (55.94) plus receivables (36.04) exceed current liabilities (54.82), reducing near-term refinancing risk. Working capital is positive at 39.95, but payables are large at 45.88, implying reliance on supplier credit typical in the sector; timing shifts could swing OCF. Solvency: D/E ratio of 0.98x is within conservative range (<1.5x benchmark), though interest-bearing debt details are unreported; no immediate red flags. No warnings: Current Ratio is well above 1.0; D/E is below 2.0. Maturity mismatch risk appears low given liquid assets vs current liabilities. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF was 1.69 vs net income of 2.06, giving OCF/NI of 0.82x—just above our 0.8x caution threshold, indicating acceptable but not strong cash conversion. Free cash flow is reported at -1.64, despite modest capex of -0.63, implying additional investment outflows (e.g., acquisitions or intangibles) drove negative FCF. This suggests that while core operations generate cash, growth investments are currently outpacing organic cash generation. Sustainability: if investment intensity persists, dividend and buyback capacity could be constrained absent higher OCF. Working capital: receivables (36.04) vs payables (45.88) indicates a payable-funded model; any tightening by platforms/suppliers or slower collections could pressure OCF. No clear signs of working capital manipulation from the limited data, but the model is sensitive to billing cycle shifts.

Dividend Sustainability

Dividend data are largely unreported (DPS and total dividends N/A). The calculated payout ratio (101.5%) conflicts with the reported figure (3.2%), suggesting data mapping limitations; we cannot conclusively assess payout level from this dataset. With negative FCF of -1.64, dividends (if any) would not be covered by FCF this period; however, OCF was positive and liquidity is ample, providing flexibility. Until clearer DPS information is available, our base view is that sustainable payouts require either reduced investment outflows or improved OCF from margin recovery. Policy outlook cannot be inferred from the provided data.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A (78.5% of sales) leading to negative operating leverage
• Demand cyclicality in digital advertising/affiliate markets
• Platform dependency and changes to algorithms/policies affecting traffic acquisition cost
• Privacy regulation and cookie policy changes impacting performance marketing effectiveness
• Client concentration risk common in agency/affiliate models (not disclosed but typical)

Financial Risks:

• Negative free cash flow (-1.64) due to investment outflows, pressuring cash if sustained
• High trade payables (45.88) relative to receivables (36.04), exposing OCF to billing cycle shifts
• Effective tax rate elevated at 43%, increasing earnings volatility if not normalized
• Limited visibility on interest-bearing debt and interest coverage (unreported), creating uncertainty

Key Concerns:

• Operating margin compressed by ~280 bps YoY to 4.2%
• ROE at 3.7% below typical internet sector norms
• Dividend visibility is low; payout data inconsistent and DPS unreported
• Investment cash outflows outpacing OCF, resulting in negative FCF

Investment Implications

Key Takeaways:

• Top-line up 11.8% YoY but operating income down 33.2%, indicating cost headwinds
• Operating margin fell to 4.2% from ~7.0% (≈-280 bps), with SG&A at 78.5% of sales
• ROE is modest at 3.7%; leverage moderate at 1.98x financial leverage
• OCF/NI at 0.82x is acceptable; FCF negative due to heightened investing cash outflows
• Balance sheet liquidity is strong (cash 55.94; current ratio 173%)

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• OCF/Net Income and free cash flow trend as investments normalize
• Effective tax rate normalization from 43%
• Receivables and payables turnover (AR/AP days) to monitor working capital swings
• Growth ROI from recent investments (revenue uplift vs capex/intangible spend)

Relative Positioning: Compared to domestic internet advertising peers, revenue growth is healthy but profitability and ROE are on the low side due to elevated SG&A; liquidity is a relative strength, while cash generation after investments lags.

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