Software Service,Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥42.30B
• Operating Income: ¥8.39B
• Net Income: ¥5.95B
• EPS: ¥1,167.88

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

Software Service Co., Ltd. (TSE:3733) delivered solid FY2025 Q4 results under JGAAP on a consolidated basis, with revenue of ¥42.30bn (+10.1% YoY) and operating income of ¥8.39bn (+15.3% YoY), indicating operating leverage as profit growth outpaced sales. Net income rose 14.7% YoY to ¥6.11bn, translating to EPS of ¥1,167.88. Profitability remains robust: gross margin was 23.6%, operating margin 19.8%, EBITDA margin 21.4%, and net margin 14.45%. DuPont analysis implies ROE of 14.59% driven by a healthy net margin (14.45%), steady asset turnover (0.81x), and conservative leverage (1.25x). The balance sheet is very strong with total assets of ¥52.19bn and low liabilities of ¥8.46bn; the current ratio is 299% and working capital ¥16.73bn, pointing to ample liquidity. Debt metrics appear conservative (D/E 0.20x), and interest expense is negligible, minimizing financial risk. Operating CF was ¥3.21bn (OCF/NI 0.53), below earnings due to working capital or other timing effects; after ¥1.56bn investing outflows, FCF came to ¥1.66bn. Ordinary income exceeded operating income by ¥0.08bn, indicating small positive non-operating contributions. The effective tax rate, inferred from available data, appears roughly in the mid‑20% range, despite a 0.0% placeholder in the calculated metrics. Dividend data (DPS, payout) were not disclosed in XBRL (zeros indicate unreported), so dividend conclusions rely on capacity rather than stated policy. Based on EPS and net income, implied shares outstanding are roughly 5.23 million, but official share count was not disclosed. Overall, earnings quality is good but cash conversion was soft this year; the company retains high margins, resilient ROE, and a fortress balance sheet. Revenue growth appears demand-driven with operating margin expansion of roughly +0.9pp YoY. Investment and financing cash flows were modest, consistent with organic growth. Key watchpoints are OCF normalization, order backlog visibility, staffing/utilization, and maintenance of pricing power. Data limitations (equity ratio, DPS, share count not disclosed) constrain certain ratio analyses and per-share cross‑checks, but the available non‑zero data supports a favorable fundamental profile.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 14.45%
• asset_turnover: 0.810x
• financial_leverage: 1.25x
• calculated_ROE: 14.59%
• notes: ROE alignment with reported 14.59% indicates internal consistency. Leverage suggests an equity-rich balance sheet (~80% equity asset mix implied by 1/1.25), consistent with low liabilities. margin_quality:
• gross_margin: 23.6% (¥9.99bn GP on ¥42.30bn sales)
• operating_margin: 19.8% (¥8.39bn OI)
• EBITDA_margin: 21.4% (¥9.04bn EBITDA)
• net_margin: 14.45% (¥6.11bn NI)
• commentary: Margins are strong for a systems/IT services company, with limited non-operating distortion (ordinary income only ¥0.08bn above operating). Tax burden appears normalizing in the mid‑20% range. operating_leverage:
• revenue_growth_YoY: +10.1%
• operating_income_growth_YoY: +15.3%
• implied_margin_expansion: +0.9pp YoY (OPM from ~19.0% to 19.8% by back-calculation)
• drivers: Scale benefits and disciplined cost control likely offset wage inflation. Non-operating contributions were minimal.

Growth Assessment

revenue_sustainability: Double-digit growth (+10.1% YoY) suggests healthy demand environment. For an enterprise software/services mix, this pace indicates sustained project implementations and/or maintenance/upgrade cycles. profit_quality: Net income growth (+14.7%) outpaced sales, supported by margin expansion and negligible interest burden. Ordinary income slightly above operating income implies small recurring financial income or JV gains. outlook: With high margins and conservative leverage, the company is well positioned to pursue continued organic growth. Key dependencies include order backlog, client IT budgets (healthcare/public sector exposure likely), and staffing capacity to deliver projects at target margins. Monitoring OCF normalization will be important for sustaining investment and potential shareholder returns.

Financial Health

liquidity:

• current_ratio: 299.3%
• quick_ratio: 299.3% (inventories unreported)
• working_capital: ¥16.73bn
• commentary: Short-term liquidity is ample; no signs of near-term cash strain despite OCF softness. Cash & equivalents were unreported in XBRL. solvency:
• debt_to_equity: 0.20x
• interest_coverage: Not meaningful; interest expense reported as 0, indicating de minimis interest burden.
• equity_ratio_note: Equity ratio not disclosed (0 value is an XBRL placeholder). Balance sheet leverage appears low given liabilities of ¥8.46bn vs assets of ¥52.19bn. capital_structure: Highly equity-financed with limited financial debt. Ordinary income close to operating income indicates low reliance on financial income/expenses.

Cash Flow Quality

earnings_quality: OCF/Net income at 0.53 indicates weaker conversion this period, likely due to working capital absorption (e.g., receivables build, timing of billings/collections) or tax/payment timing. EBITDA coverage of capex/investing was sufficient to generate positive FCF. FCF_analysis:

• operating_CF: ¥3.21bn
• investing_CF: ¥-1.56bn
• free_cash_flow: ¥1.66bn
• OCF_margin: ≈7.6% of revenue
• FCF_margin: ≈3.9% of revenue
• commentary: Positive FCF provides capacity for reinvestment and returns, albeit below earnings due to cash conversion headwinds. working_capital: Working capital stood at ¥16.73bn with a 299% current ratio. Specific components (cash, receivables, payables) were not disclosed; inventories were unreported. Focus should be on DSO and billing milestones to improve conversion.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio were not disclosed (zeros indicate unreported). EPS was ¥1,167.88, implying capacity for distributions if policy allows. FCF_coverage: With FCF of ¥1.66bn, the company has room to cover a moderate dividend while funding growth, contingent on OCF normalization. policy_outlook: Without disclosed DPS or stated policy, infer a conservative stance aligned with strong balance sheet and reinvestment needs. Future distributions depend on cash conversion, capex/M&A needs, and board policy. Using net income and EPS, implied shares outstanding are roughly 5.23 million, suggesting FCF per share of ~¥316.

Risk Assessment

Business Risks:

• Project timing and order backlog visibility affecting quarterly revenue recognition
• Engineer hiring/retention and wage inflation pressure on margins
• Fixed‑price project execution risk leading to potential cost overruns
• Client concentration risk if a few large healthcare/public sector customers dominate sales
• Regulatory and reimbursement changes impacting healthcare IT demand
• Competition from large SIers and specialized health IT vendors

Financial Risks:

• Below‑par OCF to net income conversion (0.53) causing cash timing pressure
• Potential receivables build and elongated DSO typical of enterprise projects
• Limited disclosure on interest‑bearing debt structure despite low D/E ratio
• Tax rate variability due to non‑operating items and potential credits

Key Concerns:

• Sustained improvement in cash conversion and working capital discipline
• Maintaining operating margin near 20% amid talent cost inflation
• Order intake/backlog sufficiency to sustain double‑digit growth

Investment Implications

Key Takeaways:

• Strong topline growth (+10.1%) with operating leverage (+15.3% OP) and margin expansion
• High profitability profile: OPM 19.8%, EBITDA margin 21.4%, net margin 14.45%
• ROE of 14.59% supported by robust margins and conservative leverage (1.25x)
• Fortress balance sheet with low liabilities (D/E 0.20x) and ample liquidity (current ratio 299%)
• Positive FCF of ¥1.66bn despite soft OCF conversion (0.53x NI)
• Dividend details not disclosed; capacity exists but policy visibility is limited

Metrics to Watch:

• Order backlog and book‑to‑bill
• OCF/Net income and DSO trends
• Gross margin and SG&A ratio to monitor cost discipline
• Headcount, utilization, and wage inflation impact
• Capex/investing outlays and M&A activity
• Effective tax rate normalization

Relative Positioning: Within Japan’s healthcare/enterprise IT services universe, the company exhibits superior operating margins near 20%, healthy ROE in the mid‑teens, and a very conservative balance sheet, positioning it favorably versus peers on profitability and risk profile, with the caveat of weaker cash conversion this year.

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