System D Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥5.03B
• Operating Income: ¥938M
• Net Income: ¥618M
• EPS: ¥97.92

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: A solid Q4 finish with double-digit profit growth, modest margin expansion, and strong cash conversion, underscoring resilient fundamentals. Revenue grew 8.7% year over year to 50.32, while operating income rose 13.2% to 9.38 and net income increased 12.9% to 6.27, indicating positive operating leverage. Operating margin expanded to 18.6% this quarter from an estimated 17.9% a year ago, a roughly 70 bps improvement driven by cost discipline and scale benefits. Net margin improved to 12.5% from an estimated 12.0% a year ago, a circa 50 bps expansion despite a 31.3% effective tax rate. Gross margin stood at 43.3%, evidencing healthy project/unit economics for a software/services model. Ordinary income increased 13.7% to 9.43, with minimal non-operating items (non-operating income 0.08; expenses 0.02), emphasizing core earnings quality. EBITDA reached 9.78 with an EBITDA margin of 19.4%, supported by low D&A (0.40), highlighting an asset-light profile. Cash generation was strong: operating cash flow of 10.77 was 1.72x net income, and free cash flow of 3.37 covered estimated dividends 2.16x. The balance sheet remains conservative: current ratio 187.4%, quick ratio 181.4%, debt-to-equity 0.47x, interest coverage 505x, and equity ratio approximately 68%. Liquidity comfortably exceeds short-term obligations (current assets 36.11 vs current liabilities 19.27), with cash and deposits of 21.01 providing a sizable buffer. Working capital appears well controlled with accounts receivable of 5.76 and inventories of 1.15, consistent with a low-inventory software/services mix. Return profile is healthy: ROE at 12.5% via DuPont (NPM 12.5% × asset turnover 0.684 × leverage 1.47x), supported primarily by margin strength rather than leverage. Earnings quality is high, with OCF outpacing net income and limited reliance on below-the-line gains or financing. Capex remains modest (-0.10), while investing CF (-7.40) likely reflects software/intangibles build or strategic investments; financing CF (-2.61) reflects shareholder returns and/or debt repayment. Forward-looking, management appears to have room to sustain dividends (calculated payout 24.9%) and reinvest prudently given net cash and FCF headroom. Key watch points include wage inflation for engineers, project mix (license/subscription vs. services), and the scale and amortization of intangibles (11.36) and goodwill (1.48), which together form a meaningful asset base.

Profitability Analysis

ROE decomposition (DuPont): ROE 12.5% = Net Profit Margin 12.5% × Asset Turnover 0.684 × Financial Leverage 1.47x. The biggest positive delta versus last year appears to be net profit margin, which expanded about 50 bps (from ~12.0% to 12.5%), while operating margin expanded ~70 bps (to 18.6%). Financial leverage is stable at ~1.47x (assets 73.60 / equity 50.07), implying no incremental leverage-driven ROE. The margin improvement likely stems from operating scale, disciplined SG&A (24.7% of sales), and favorable project mix; non-operating impacts were minimal (net +0.06). This improvement looks sustainable near term given the recurring/maintenance nature typical of software-oriented revenue and modest D&A, though tight labor markets could pressure SG&A going forward. No signs of negative operating leverage this quarter, as operating income growth (+13.2%) outpaced revenue growth (+8.7%).

Growth Assessment

Topline growth of 8.7% to 50.32 demonstrates steady demand in core offerings. Profit growth outpaced sales (OI +13.2%, NI +12.9%), implying improved mix and cost control. Operating margin rose to 18.6%, suggesting healthy pricing and utilization. Non-operating items were negligible, meaning core business drove the outcome. With EBITDA margin at 19.4% and low D&A, incremental margins remain attractive. Sustainability appears reasonable given the software/services profile and low inventory model; however, sustaining high-teens OPM will require managing wage inflation and maintaining high-value project mix. Outlook hinges on pipeline conversion, maintenance/recurring revenue stability, and any expansion in subscription or cloud-related services. Lack of disclosed R&D may understate organic investment if expensed under different captions; continued product investment will be important to sustain growth.

Financial Health

Liquidity is strong: current ratio 187.4% and quick ratio 181.4%, with cash and deposits of 21.01 versus current liabilities of 19.27. No warning thresholds are breached (Current Ratio well above 1.0; D/E 0.47x below 2.0). Solvency is conservative with equity ratio ~68% (50.07/73.60), and interest coverage is extremely high at 505x, reflecting minimal interest burden (0.02). Maturity profile risk appears low; long-term loans are 0.73 and there is no reported short-term borrowing. Current assets exceed current liabilities by 16.84, limiting rollover risk. Off-balance obligations are not disclosed; no direct evidence of material leases or guarantees in the provided data.

Cash Flow Quality

Earnings quality is high: OCF/NI at 1.72x (>1.0 threshold), indicating robust cash conversion. Free cash flow of 3.37 (after modest capex of 0.10 and investing CF of -7.40 largely beyond capex) comfortably covers an implied dividend load (FCF coverage 2.16x) and leaves room for selective reinvestment. Working capital appears well managed given low inventories and moderate receivables, with no signs of revenue pull-forward or payables stretching in the data provided. There are no red flags such as OCF/NI < 0.8 or outsized non-operating gains. The negative investing CF likely reflects intangible/software development or small strategic assets; monitoring capitalization and subsequent amortization is warranted.

Dividend Sustainability

The calculated payout ratio is 24.9%, well within the <60% benchmark for sustainability. FCF coverage of dividends is 2.16x, indicating room to maintain or cautiously raise shareholder returns without stressing liquidity. Net cash position (cash 21.01 vs. long-term debt 0.73) adds resilience. DPS and total dividends are unreported, but the payout math aligns with earnings and cash generation capacity. Policy continuity appears likely given stable profitability and ample coverage, though management’s reinvestment needs (especially in intangibles/product development) could influence the pace of increases.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price or large-scale implementations impacting margins.
• Talent retention and wage inflation for engineers potentially pressuring SG&A and delivery margins.
• Customer concentration risk typical for B2B software/services vendors.
• Product obsolescence risk if R&D/product investment lags market needs.
• Dependence on maintenance/upgrade cycles and potential timing volatility in license or subscription renewals.

Financial Risks:

• Intangibles and goodwill concentration (intangible assets 11.36; goodwill 1.48) increase sensitivity to impairment or amortization.
• Potential capitalization of development costs affecting earnings timing and future amortization burden.
• Limited disclosure of short-term borrowings and lease obligations (if any) could mask minor liquidity needs, though current metrics are strong.
• Tax rate variability (31.3% effective) could affect net margins.

Key Concerns:

• Sustaining high-teens operating margin amid labor cost inflation.
• Visibility on backlog and renewal rates not provided, adding uncertainty to forward revenue cadence.
• Reported XBRL ratios (e.g., operating margin 0.2%, ROA 0.1%) appear misclassified, necessitating reliance on calculated metrics.

Investment Implications

Key Takeaways:

• Profit growth outpaced sales with operating margin expanding ~70 bps to 18.6%.
• ROE at 12.5% is driven primarily by margin strength, not leverage (leverage ~1.47x).
• Cash conversion is strong (OCF/NI 1.72x) and FCF is sufficient to fund dividends with 2.16x coverage.
• Balance sheet is robust with net cash and equity ratio ~68%, minimizing financial risk.
• Intangible-heavy asset base requires monitoring for amortization and potential impairments.

Metrics to Watch:

• Operating margin sustainability and SG&A as a percentage of sales (currently ~24.7%).
• Bookings/backlog and renewal rates for maintenance/subscription revenue.
• Headcount growth and wage trends impacting delivery capacity and costs.
• Receivables quality and DSO trends (AR 5.76 implies ~40–45 days).
• Capitalization of development costs and amortization expense trajectory.
• Tax rate evolution vs. effective 31.3%.

Relative Positioning: Compared with TSE-listed software/services peers, System D posts above-average profitability (18.6% OPM vs. sector low-teens), solid ROE (~12.5%), and a conservative balance sheet with net cash, positioning it favorably on quality and financial resilience.

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