GVA TECH,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.11B
• Operating Income: ¥-259M
• Net Income: ¥-270M
• EPS: ¥-58.39

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

Verdict: Strong top-line growth but continued operating losses and thin equity base characterize FY2025 Q3, with leverage and negative ROE signaling elevated financial risk. Revenue grew 38.4% YoY to 11.07, while gross profit reached 5.24, implying a healthy gross margin of 47.3%. SG&A of 9.14 outpaced gross profit by 3.90, resulting in operating loss of -2.59 and an operating margin of -23.4%. Ordinary income was -2.68, and profit before tax deteriorated to -3.97, suggesting additional non-operating/extraordinary losses not detailed in disclosures. Net income was -2.70 (EPS -58.39 yen), translating to a net margin of -24.4%. DuPont shows ROE at -79.4% driven by negative margin (-24.4%), modest asset turnover (0.683x), and high financial leverage (4.76x). Current ratio is 135% (adequate for near-term), but D/E at 2.04x breaches our 2.0x caution threshold, and interest coverage is deeply negative (-43x), underscoring refinancing sensitivity. Cash and deposits of 5.42 exceed current liabilities of 5.03, providing a short-term liquidity cushion despite losses. Intangible assets are sizable at 5.93 (≈37% of total assets), raising impairment risk if growth or unit economics weaken. Earnings quality assessment is constrained: operating cash flow is unreported, and OCF/NI cannot be validated. Margin trend comparisons in basis points are not possible due to absent prior-period profitability metrics, though the current gross margin (47%) is a clear positive against the heavy fixed-cost base. The gap between ordinary income (-2.68) and pretax loss (-3.97) indicates likely extraordinary charges this quarter, a negative for bottom line durability. With retained earnings at -12.37 and total equity at only 3.40, the capital buffer is thin relative to total assets of 16.20. Forward-looking, the path to break-even hinges on converting top-line growth into operating leverage via SG&A discipline, while managing leverage and avoiding impairments. Near-term solvency looks manageable given cash on hand, but sustained losses could quickly erode equity and covenant headroom.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-24.4%) × 0.683 × 4.76 ≈ -79.4%. The dominant driver is the sharply negative net margin; asset turnover is moderate and leverage is high. The primary business reason is a cost structure where SG&A (9.14) exceeds gross profit (5.24) by a wide margin, preventing scale benefits from 38.4% YoY revenue growth. The negative spread between gross profit and SG&A suggests insufficient operating leverage at current scale, potentially due to heavy investment in sales, product, and development. Sustainability: the gross margin of 47.3% is structurally supportive, but absent material SG&A containment or further scale, losses will persist; thus, current ROE is not sustainable and relies on significant operating improvements. Concerning trend flags: SG&A growth cannot be benchmarked YoY from disclosures, but absolute SG&A at 83% of revenue and 174% of gross profit is elevated; interest burden (0.06) is small in absolute terms but coverage is negative given operating losses.

Growth Assessment

Revenue growth was robust at +38.4% YoY to 11.07, indicating strong demand/expansion of the business base. Gross margin at 47.3% supports a viable unit economics foundation if scale continues. However, operating loss of -2.59 and net margin of -24.4% show that growth is not yet translating into profitability. No segment or cohort disclosures are available, limiting assessment of recurring vs non-recurring revenue quality. The gap between ordinary income (-2.68) and pretax loss (-3.97) implies extraordinary items/one-offs this quarter, which depress reported earnings quality. Outlook: if revenue momentum sustains and fixed costs normalize, the business could approach break-even over coming periods; absent SG&A discipline, further capital may be required. Key swing factors include sales productivity, churn/retention (not disclosed), and potential impairment of intangibles if monetization lags. With equity at 3.40 and D/E at 2.04x, growth funding flexibility is constrained, making efficient growth (lower CAC, higher ARPU) critical.

Financial Health

Liquidity: Current ratio 135.4% and quick ratio 135.4% indicate adequate short-term coverage; cash and deposits (5.42) exceed current liabilities (5.03), providing near-term liquidity runway. Solvency: D/E at 2.04x exceeds the 2.0x warning threshold (explicit caution), and leverage is high with assets/equity at 4.76x. Interest coverage is -43.0x, reflecting inability to service interest from operations; while absolute interest expense is modest (0.06), sustained losses pose refinancing risk. Maturity mismatch: short-term loans are 0.83, comfortably covered by cash; however, total current liabilities (5.03) nearly match cash, reducing cushion if losses persist. Capital structure: total equity is 3.40 with retained earnings of -12.37, signaling limited loss-absorption capacity. Off-balance sheet obligations: none disclosed; no data provided on leases/guarantees. Warning flags: D/E > 2.0 and negative interest coverage warrant monitoring; current ratio is >1.0 but below the 1.5 comfort benchmark.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; therefore, we cannot validate accrual reversals or cash conversion. Free cash flow is also unreported; dividend and capex coverage cannot be gauged. Earnings-to-cash divergence risks exist given large intangibles (5.93), which may reflect capitalized development; if so, OCF could be weaker than EBIT suggests. Working capital: accounts receivable (0.85) are modest relative to revenue scale, and accounts payable (0.02) are very low, limiting supplier financing; no inventory is reported. No clear signs of quarter-end working capital window-dressing are observable from available line items, but data limitations are significant. Sustainability: without OCF data, we assume external funding or cash drawdown is needed to support losses in the near term.

Dividend Sustainability

Dividends are unreported and likely absent given negative net income (-2.70) and accumulated deficits (retained earnings -12.37). Payout ratios and FCF coverage are not calculable due to missing cash flow data. Given the thin equity base (3.40) and leverage above our threshold, capital preservation supersedes distributions. Policy outlook: expect a conservative stance focused on breakeven and balance sheet reinforcement; any future payouts would require sustained positive OCF and net profit.

Risk Assessment

Business Risks:

• Inability to translate 38%+ revenue growth into operating leverage, with SG&A (9.14) exceeding gross profit (5.24).
• Potential impairment of sizable intangible assets (5.93), which would further erode equity.
• Execution risk in scaling sales productivity and retention (limited disclosure on recurring revenue metrics).
• Customer concentration or churn risk (not disclosed), which can amplify volatility at small scale.

Financial Risks:

• High leverage: D/E 2.04x (above threshold) and assets/equity 4.76x.
• Negative interest coverage (-43x), indicating inability to service debt from operations.
• Thin equity buffer (3.40) with large accumulated deficit (-12.37), heightening going-concern sensitivity if losses persist.
• Refinancing risk for short-term loans (0.83) and broader liabilities (current liabilities 5.03) if cash burn continues.

Key Concerns:

• Extraordinary losses implied by the gap between ordinary income (-2.68) and pretax loss (-3.97), depressing bottom line.
• Lack of operating cash flow disclosure, obscuring earnings quality and burn rate.
• Negative ROE (-79.4%) and ROIC (-355.4%) indicate severe value erosion absent a swift profitability pivot.
• Limited supplier financing (accounts payable 0.02) reduces working capital flexibility.

Investment Implications

Key Takeaways:

• Top-line momentum is strong (+38.4% YoY), and gross margin is healthy at 47.3%.
• Cost structure remains misaligned: SG&A (9.14) exceeds gross profit by 3.90, driving operating loss (-2.59).
• Leverage is elevated (D/E 2.04x) with negative coverage, constraining financial flexibility.
• Equity is thin (3.40) and retained earnings are deeply negative (-12.37), increasing dilution/refinancing risk if losses persist.
• Intangible asset concentration (5.93) presents impairment downside if growth slows.
• Short-term liquidity is adequate (cash 5.42 > current liabilities 5.03), but runway depends on burn.

Metrics to Watch:

• Quarterly operating cash flow and cash burn rate.
• SG&A trend versus revenue growth (operating leverage inflection).
• Gross margin stability and unit economics (CAC payback/LTV if disclosed).
• Extraordinary items detail and potential impairment charges.
• Leverage and covenant headroom; refinancing status of short-term loans.
• Deferred revenue/backlog (if SaaS-like model) as a demand indicator.

Relative Positioning: Versus domestic small-cap software/tech peers, the company shows competitive gross margins and growth but lags on cost discipline and balance sheet resilience, with higher leverage and thinner equity buffer than typical profitable or near-breakeven peers.

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