YE DIGITAL Corporation FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥14.98B
• Operating Income: ¥1.24B
• Net Income: ¥881M
• EPS: ¥48.15

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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Verdict: Solid profitability improvement with modest top-line growth and healthy liquidity in FY2026 Q3. Revenue grew 2.0% YoY to 149.82, while operating income rose 29.6% YoY to 12.38, demonstrating clear operating leverage. Net income increased 34.7% YoY to 8.66, with EPS (basic) of 48.15 JPY. Gross margin was 28.4%, and operating margin improved to 8.3% (calculated 8.26%), a strong expansion from the prior period. Operating margin expanded by approximately 176 bps YoY (from ~6.5% to ~8.3%). Net margin improved by about 140 bps YoY (from ~4.4% to ~5.8%). Ordinary income margin reached ~8.9%, supported by positive non-operating balance (non-operating income of 0.94 vs expenses of 0.04). The DuPont ROE stands at 11.4%, categorized as “good,” driven by better margins and steady asset turnover (1.065x) with moderate leverage (1.86x). Tax burden was 0.652 (effective tax rate 33.6%), a drag on net profitability but within typical domestic ranges. Liquidity is strong with a current ratio of 226% and quick ratio of 223%; cash and deposits of 36.43 comfortably cover accounts payable of 15.59. Balance sheet shows ample working capital of 58.55 and equity of 75.73, keeping leverage conservative (D/E 0.86x per provided ratio). Earnings quality cannot be fully assessed this quarter due to unreported cash flow data; OCF/NI and FCF coverage are not calculable. Dividend policy appears balanced: full-year DPS guided at 20 JPY implies a payout ratio of ~42%, within sustainable bounds given current profitability and cash position. Forward-looking, margin momentum and disciplined SG&A underpin earnings resilience, but growth remains modest; sustaining backlog, mix shift to higher-margin/recurring services, and tight project governance will be key to maintaining ROE >10%. No significant quality alerts were flagged in the data; however, the absence of cash flow disclosure is a notable limitation for assessing earnings durability.

From Earnings Presentation: This PDF is a correction notice dated December 23, 2025, rectifying a misstatement in the Business Solutions segment’s Q3 FY ending February 2025 actuals on page 8 of the “Q3 FY ending February 2026 Earnings Presentation Materials” published the same day. The correction is an upward revision of the prior-year figure for the Business Solutions segment from 10,396 million yen to 11,795 million yen, an increase of approximately 1,399 million yen (about 13.5%). The reason for the correction is cited as a clerical error during preparation; as there is no correction to the main earnings release (Tanshin), it is presumed to be a transcription error in the presentation materials. As a result of this upward revision to the prior-year baseline, the growth rate versus the current period mechanically declines. The previously flagged conservative assessment of revenue growth at +2.0% in the GPT analysis should be viewed even more cautiously on this revised base. The substantive content of the earnings presentation (strategy, outlook, detailed business explanations, etc.) is not included in this PDF; it is a correction notice only.

Financial Analysis

Profitability

ROE decomposition (DuPont 3-factor): ROE 11.4% = Net Profit Margin (5.8%) × Asset Turnover (1.065x) × Financial Leverage (1.86x). Extended (5-factor): Tax burden 0.652 × Interest burden 1.072 × EBIT margin 8.3% × Asset turnover 1.065 × Leverage 1.86 = ~11.4%. The largest YoY driver is margin expansion: operating margin rose ~176 bps (to ~8.3%) while revenue grew only 2.0%, indicating positive operating leverage. Business drivers likely include improved project execution, better utilization, and mix optimization, with non-operating gains (net +0.90) modestly aiding ordinary income. The improvement looks largely sustainable if mix/disciplined SG&A continues; however, some portion could be timing-related (project milestone recognition) given integrator business seasonality. Gross margin of 28.4% remains typical for systems integration/IoT solutions in Japan, not SaaS-level, reinforcing the importance of utilization and delivery efficiency. Net margin rose ~140 bps to ~5.8%, helped by better operating performance but partially offset by a relatively high tax rate (33.6%). Watch for SG&A growth vs sales; though SG&A level is disclosed (30.15), component details are unreported, limiting granularity. No evidence of interest drag; interest burden >1 (1.072) implies net non-operating gains, not a structural cost of debt.

Growth

Top-line grew 2.0% YoY to 149.82, a modest pace for IT services. Operating income +29.6% YoY and ordinary income +31.4% YoY indicate strong operating leverage and likely improved delivery efficiency. Rule of 40 proxy (revenue growth + operating margin) is ~10.3%, below high-growth SaaS benchmarks, consistent with an IT services profile. With gross margin at 28.4% and limited disclosure on recurring revenue, growth appears driven by project-based work rather than subscriptions. Sustainability hinges on backlog visibility, higher-margin solution mix (IoT/AI/Cloud), and capacity utilization; these data points were not disclosed. Non-operating support was modestly positive but not a core growth driver. Outlook: near-term earnings likely supported by cost discipline and utilization; accelerating revenue will require stronger order intake and possibly deeper vertical solutions to lift pricing power.

Financial Health

Liquidity is strong: current ratio 226.1% and quick ratio 222.9%, well above thresholds, with cash and deposits (36.43) and receivables (55.47) comfortably covering current liabilities (46.43). No warning triggers: Current Ratio > 1.0 and D/E (provided) at 0.86x, below 1.0. Maturity mismatch risk appears low: current assets (104.99) exceed current liabilities by 58.55; cash alone covers 78% of current liabilities and exceeds accounts payable (15.59) by over 20.8. Total liabilities are 65.01 vs equity 75.73, implying conservative leverage. Interest-bearing debt details were unreported, so covenant-based solvency metrics (Debt/EBITDA, coverage) cannot be assessed. No off-balance sheet obligations were mentioned in the dataset.

Cash Flow

Cash flow statements were not disclosed this quarter; therefore, OCF/Net Income, FCF, and cash conversion cannot be calculated. As a result, we cannot validate earnings quality through cash conversion or working capital dynamics. Receivables are sizable at 55.47, typical for systems integrators where milestone billing impacts cash timing; without OCF, we cannot confirm whether collections kept pace with revenue. Dividend coverage by FCF is unassessable, but on-balance-sheet cash and strong liquidity provide a buffer. No explicit signs of working capital manipulation can be inferred from the provided data.

Dividend Sustainability

DPS indicated at 20 JPY (10 JPY interim, 10 JPY year-end) implies an estimated total dividend of ~3.67 billion JPY for 18.33 million shares outstanding, equating to a payout ratio of ~42.3% against net income. This payout level is within sustainable bounds (<60% benchmark) given current profitability and balance sheet strength. FCF coverage is unreported; thus, we rely on proxy indicators: strong liquidity (cash 36.43) and working capital cushion suggest capacity to maintain dividends absent a sharp downturn. Policy outlook: absent capex spikes or acquisitions, the current payout looks maintainable; any shift toward higher recurring revenue and stable OCF would further strengthen sustainability.

Business Outlook

There is no description of business outlook in this PDF. It contains a correction notice only. While the upward revision to the prior-year results for the Business Solutions segment may make the current period’s growth rate appear relatively lower, this is a change to the comparison base; the current period’s actuals themselves are unchanged.

Management Guidance

No management guidance or comments are included in this PDF. Aside from stating the reason for correction as a “clerical error during preparation,” there is no reference to performance or strategy.

Strategic Initiatives

Risk Assessment

Business Risks:

• Project execution and delivery risk in fixed-price or milestone-based contracts, potentially pressuring margins.
• Modest revenue growth (+2.0% YoY) may limit operating leverage if utilization softens.
• Talent acquisition/retention and wage inflation in IT services could raise SG&A and COGS.
• Customer concentration or delays in large projects could impact quarterly revenue recognition.

Financial Risks:

• Cash flow visibility is limited due to unreported OCF; collection delays could stress cash conversion.
• Receivables concentration (55.47) exposes working capital to client payment timing.
• Tax burden at 33.6% constrains net margin and ROE uplift.
• Debt structure unknown (interest-bearing debt unreported), limiting assessment of covenant headroom.

Key Concerns:

• Data limitations on cash flow and capex impede assessment of earnings quality and FCF.
• Sustaining margin gains requires continued SG&A discipline and utilization; any slowdown could compress margins.
• Low Rule of 40 (~10%) underscores reliance on efficiency rather than high growth.

Investment Implications

Key Takeaways:

• Earnings leverage evident: operating income +29.6% on +2.0% revenue.
• Operating margin expanded ~176 bps to ~8.3%; net margin improved ~140 bps to ~5.8%.
• ROE of 11.4% is solid, driven by better margins and moderate leverage.
• Liquidity is robust (CR 226%, QR 223%) with ample cash relative to payables.
• Dividend payout ~42% appears sustainable given balance sheet strength.
• Cash flow disclosure gap is the main constraint to conviction on earnings quality.

Metrics to Watch:

• Operating cash flow vs net income (OCF/NI) and working capital movements (AR days).
• Order backlog and book-to-bill for revenue visibility.
• Gross margin mix by service/solution and utilization rates.
• SG&A growth vs revenue and headcount productivity.
• Tax rate trajectory and any changes to non-operating items.
• Recurring revenue ratio (ARR/MRR) and churn/renewal where applicable.

Relative Positioning: Relative to domestic IT services peers, YE DIGITAL shows stronger margin momentum this quarter and healthy ROE with conservative liquidity, but trails high-growth SaaS benchmarks on Rule of 40 and lacks disclosure on recurring revenue and cash flow conversion.

Supplementary Insights (Key Highlights)

• Prior-year results for the Business Solutions segment were revised upward by approximately 13.5% (10,396 million yen → 11,795 million yen)
• The correction stems from a clerical error during preparation and does not affect the main earnings release (Tanshin)
• Due to the upward revision of prior-year results, the year-over-year growth rate for the current period mechanically declines
• The correction was published on the same day as the Q3 earnings announcement, indicating a prompt response
• As the correction applies only to the presentation materials and not to the actual financial figures (Tanshin), the impact on investment decisions is limited

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