Hotto Link Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.59B
• Operating Income: ¥-169M
• Net Income: ¥-256M
• EPS: ¥-16.33

Income Statement

Balance Sheet

Cash Flow Statement

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: Weak quarter with a swing to operating and net losses, driven by double-digit revenue decline and insufficient cost flexibility, despite positive operating cash flow and a strong equity base. Revenue fell 20.7% YoY to 25.88, while operating income turned to a loss of -1.69 and net income was -2.56 (down 97.8% YoY). Gross profit was 9.68 with a gross margin of 37.4%, and EBITDA was positive at 1.58 (6.1% margin), but depreciation and amortization of 3.27 pulled operating income into the red. Operating margin was -6.5%, and net margin was -9.9%, underscoring margin compression versus last year; precise basis-point changes are not calculable due to missing prior-period margin data. The DuPont decomposition shows ROE at -4.7%, driven primarily by a negative net profit margin (-9.9%) with low asset turnover (0.362) and modest leverage (1.32x). ROIC printed -2.8%, below the 5% warning threshold and well under the 7–8% target range. Earnings quality is mixed: operating cash flow was positive at 2.13, but free cash flow was negative at -0.94 due to -3.07 investing cash outflows; the OCF/Net Income metric is -0.83 by formula but is not an economically meaningful indicator in a net-loss quarter. Liquidity and solvency appear conservative with an equity ratio of 75.8% and D/E of 0.32x, and cash and equivalents of 28.53, although current ratio is unreported. The balance sheet includes sizeable goodwill of 10.89, raising an impairment watchpoint if profitability does not recover. Despite a loss, the company paid dividends totaling 0.43 via financing cash flows, which is not sustainable if FCF remains negative. The gap between EBITDA (+1.58) and operating loss (-1.69) highlights heavy non-cash charges, suggesting room for earnings recovery if top-line stabilizes and cost actions take hold. Sequential or YoY SG&A dynamics cannot be assessed due to unreported breakdowns, but SG&A of 10.09 is high relative to revenue (39% of sales), indicating operating leverage headwinds. Working capital looks ample with current assets of 33.59 and small short-term borrowings of 1.46, mitigating near-term refinancing risk. Forward-looking, restoring revenue growth and improving utilization of the cost base are critical to lift ROIC above the 5% warning line and return ROE to positive territory. Attention should focus on demand stabilization, pricing, churn, and potential impairment risk tied to goodwill if losses persist.

Profitability Analysis

ROE decomposition: ROE (-4.7%) = Net Profit Margin (-9.9%) × Asset Turnover (0.362) × Financial Leverage (1.32x). The dominant driver of the weak ROE is the negative net profit margin; asset turnover is also low, while leverage is modest and not a key swing factor. Margin deterioration stems from a 20.7% revenue decline against a relatively fixed SG&A base (10.09), and sizable D&A (3.27) that turned EBITDA of 1.58 into an operating loss of -1.69. The business reason is operating deleverage: lower volumes/revenues could not be offset by cost reductions, and non-cash amortization/depreciation is heavy relative to EBITDA. Sustainability: the negative margin is potentially reversible if revenue stabilizes and management adjusts costs; D&A is non-cash but recurring, so structural margin recovery likely requires either higher gross margin contribution or deeper SG&A efficiencies. Asset turnover at 0.362 indicates underutilized assets (including intangibles/goodwill); improving turnover depends on reigniting sales without commensurate asset growth. With leverage at only 1.32x, financial gearing will not amplify returns meaningfully—profit improvement must come from margins and turnover. Concerning trends: revenue contraction outpaces any visible cost reduction; we cannot confirm SG&A YoY as data is unreported, but SG&A at ~39% of sales is high for the current revenue level, signaling adverse operating leverage.

Growth Assessment

Top-line declined 20.7% YoY to 25.88, indicating demand softness or customer budget pressures. Gross margin is 37.4%, suggesting some pricing power or mix resilience, but not enough to offset the revenue drop given fixed costs. EBITDA remained positive (1.58, 6.1% margin), but D&A (3.27) overwhelmed operating earnings, highlighting a capitalized development/intangible amortization burden. With ROIC at -2.8%, current investments are not covering the cost of capital; improving ROIC requires either revenue recovery or asset base optimization. Profit quality is mixed: positive OCF (2.13) implies underlying cash generative capacity via working capital, but free cash flow was negative (-0.94) due to investing outflows (-3.07), limiting self-funded growth. Outlook hinges on stabilizing revenue and tightening cost control; without a rebound, risk of goodwill impairment increases. Given limited disclosure on segment mix and SG&A detail, our visibility on recurring versus one-time items is low. Near-term catalysts would include customer acquisition/retention metrics, pipeline visibility, and evidence of cost resizing.

Financial Health

Liquidity appears adequate: current assets are 33.59 versus short-term loans of 1.46, and cash and equivalents are 28.53 (current ratio not calculable due to missing current liabilities). Solvency is strong with total equity of 54.18 (equity ratio 75.8%) and debt-to-equity of 0.32x; long-term loans are modest at 3.83. There is no explicit warning on Current Ratio < 1.0 or D/E > 2.0 based on available data. Maturity mismatch risk seems low given sizable cash versus short-term debt; accounts receivable are 3.63 providing additional liquidity. Interest coverage cannot be calculated due to missing interest expense, but EBITDA is positive, suggesting some buffer. Off-balance-sheet obligations are not disclosed; therefore, contingent liabilities cannot be assessed.

Cash Flow Quality

OCF was +2.13 versus net income of -2.56; the formulaic OCF/NI is -0.83, but in loss-making periods this ratio is not economically meaningful. The positive OCF despite a net loss points to non-cash charges (D&A 3.27) and/or working capital inflows supporting cash generation. Investing CF of -3.07 drove FCF to -0.94, indicating that current investment needs outstrip internal cash generation. Dividend payments of -0.43 were funded despite negative FCF, implying reliance on cash on hand or financing; sustainability is questionable if FCF remains negative. No clear signs of aggressive working capital manipulation can be inferred from the limited data, but the OCF uplift relative to NI should be monitored for reversals as receivables/payables normalize.

Dividend Sustainability

With net losses (-2.56) and negative FCF (-0.94), the payout ratio is not meaningful and implicit coverage is weak. Dividends of 0.43 were paid, likely supported by cash reserves (cash and equivalents 28.53) rather than current period FCF. Given ROIC at -2.8% and operating losses, maintaining dividends at current levels would be unsustainable without a near-term turnaround or reduced investment cash outflows. Policy outlook is unclear due to missing DPS and guidance disclosures; prudent stance would be to prioritize cash preservation until FCF turns sustainably positive.

Risk Assessment

Business Risks:

• Revenue contraction (-20.7% YoY) indicating demand softness and potential customer churn.
• Operating deleverage with high SG&A relative to revenue (10.09 vs 25.88), pressuring margins.
• Execution risk on cost restructuring needed to offset fixed-cost burden and D&A.
• Goodwill balance (10.89) elevates impairment risk if profitability does not recover.
• Limited disclosure on segment mix and SG&A details reduces visibility into recurring earnings.

Financial Risks:

• Negative ROIC (-2.8%) signals value-destructive returns near term.
• Negative FCF (-0.94) amid investing outflows (-3.07) constrains self-funded growth.
• Dependence on cash reserves (28.53) to fund dividends despite losses.
• Potential working capital reversal risk if current OCF was supported by timing effects.
• Inability to assess interest coverage due to unreported interest expense.

Key Concerns:

• Sustained operating losses (operating margin -6.5%) if revenue does not stabilize.
• Margin compression versus prior year (bps change unquantified due to missing data).
• Equity dilution or dividend cuts if cash burn persists.
• Impairment risk tied to intangibles/goodwill weighing on equity ratio if recognized.
• Data limitations (many N/A items) obscuring full risk profile.

Investment Implications

Key Takeaways:

• Top line down 20.7% YoY to 25.88 with negative operating and net income.
• EBITDA positive (1.58) but D&A (3.27) drives operating loss (-1.69).
• ROE -4.7% and ROIC -2.8% fall below acceptable thresholds; margin is the primary drag.
• Liquidity is ample (cash and equivalents 28.53; equity ratio 75.8%), limiting near-term solvency risk.
• OCF positive (2.13) but FCF negative (-0.94) due to investing outflows (-3.07).
• Dividend payments (0.43) look weakly covered given negative FCF and losses.
• Goodwill of 10.89 raises impairment watch if recovery lags.

Metrics to Watch:

• Revenue trajectory and order/pipeline indicators.
• Gross margin and EBITDA margin progression; operating margin recovery toward breakeven.
• SG&A run-rate and cost-reduction actions.
• ROIC improvement toward >5% near term and >7% medium term.
• Free cash flow sustainability and capex/investment discipline.
• Goodwill impairment testing outcomes.
• Cash balance versus short-term obligations and any changes in borrowing.

Relative Positioning: Within small-cap digital/analytics peers, the company currently exhibits weaker profitability (negative operating margin, ROIC -2.8%) but better-than-average balance sheet resilience (equity ratio 75.8%, low D/E 0.32x). Near-term investment case hinges on demonstrating operating leverage on stabilizing revenues and protecting cash while right-sizing costs.

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