PKSHA Technology Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥21.77B
• Operating Income: ¥3.92B
• Net Income: ¥2.74B
• EPS: ¥86.47

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: Strong topline and solid profit growth with high-quality cash generation, albeit slight operating margin compression and elevated tax rate temper the upside. Revenue grew 28.9% YoY to 217.71, with gross profit of 108.44 and operating income up 25.6% YoY to 39.22. Net income rose 28.8% YoY to 26.83, tracking revenue growth and keeping net margin essentially stable at 12.3%. Operating margin is approximately 18.0% (39.22/217.71), while EBITDA reached 59.09, yielding a 27.1% EBITDA margin. Using the growth math, operating margin compressed by roughly 50 bps YoY (from ~18.5% to ~18.0%), indicating modest cost pressure or mix shift. Net margin was essentially flat (down ~1 bp) given similar growth in revenue and net income. Cash conversion was excellent: operating cash flow of 51.76 was 1.93x net income, indicating strong earnings quality. Free cash flow was negative (-10.22) due to heavy investing cash outflows (-61.98), likely tied to strategic investments and intangibles rather than core capex (capex only -2.27). Balance sheet quality remains sound with total equity of 346.99 (equity ratio 63.4%), and ample cash and equivalents of 193.58 versus debt of roughly 96.08 (short-term 75.07, long-term 21.01), implying a net cash position. ROE calculated via DuPont is 7.7%, supported by a 12.3% net margin, 0.40x asset turnover, and 1.57x financial leverage; the XBRL-reported operating/ROA metrics appear inconsistent with the income statement and are not relied upon. ROIC at 5.2% trails common 7–8% targets, reflecting a sizable goodwill/intangibles base (goodwill 129.42, intangibles 66.05) and large cash holdings diluting returns. Equity-method income was immaterial at 0.49 (1% of profit), confirming earnings are primarily operating rather than affiliate-driven. The effective tax rate was high at 41.4%, a headwind to bottom-line scalability if sustained. Going forward, momentum in revenue and operating cash flow suggests capacity to fund growth organically, but sustaining margin discipline and lifting ROIC above the cost of capital will be key to medium-term value creation.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (12.3%) × Asset Turnover (0.400) × Financial Leverage (1.57x) = 7.7%. Component changes: Net margin was essentially flat YoY (≈ -1 bp), operating margin compressed ~50 bps to ~18.0%, while revenue expanded 28.9% YoY, implying asset turnover likely contributed more to ROE than margins. Business drivers: The slight operating margin compression suggests higher SG&A investment (unreported detail), hiring costs, or revenue mix (e.g., more services/implementation) offsetting scale benefits, while strong topline growth improved utilization and operating leverage. Sustainability: Revenue momentum appears sustainable in the near term given cash-backed operations and minimal reliance on non-operating items; however, operating margin sustainability hinges on cost control and pricing discipline. Flags: SG&A details are unreported, but operating income grew slightly slower than revenue (+25.6% vs +28.9%), indicating operating cost growth at or above revenue—a mild negative for operating leverage. Other: The high effective tax rate (41.4%) constrained net margin expansion despite OCF strength.

Growth Assessment

Revenue growth of 28.9% YoY is robust and broad-based at the consolidated level, with net income growth of 28.8% indicating healthy flow-through despite mild operating margin compression. Operating growth appears largely organic given minimal equity-method contribution (0.49) and minor one-time items disclosed. EBITDA increased to 59.09, supporting capacity to invest in product and go-to-market. Sustainability: Recurring indicators (ARR, churn, backlog) are not disclosed; absent this, we infer durability from the OCF/NI of 1.93x and stable net margin. Mix considerations: Slight margin compression hints at increased services mix, upfront delivery costs, or growth investments that could normalize with scale. Outlook: With net cash and strong OCF, the company can self-fund growth; key to sustaining momentum will be converting growth into higher ROIC by improving asset turns and monetization of acquired intangibles. Watchpoints include tax normalization (currently elevated), cost discipline, and evidence of recurring revenue resilience.

Financial Health

Liquidity: Cash & equivalents of 193.58 provide strong liquidity; current assets total 249.06. Current ratio is not disclosed; no explicit warning triggered. Solvency: Debt-to-equity of 0.57x is conservative, and net cash (~97) suggests low financial risk. Maturity profile: Short-term loans of 75.07 are well covered by cash on hand; limited maturity mismatch risk given cash and OCF strength. Equity ratio of 63.4% indicates a solid capital base. Off-balance sheet: No off-balance sheet obligations disclosed in provided data. Note: Interest coverage not calculable, but EBITDA of 59.09 against modest leverage implies adequate coverage.

Cash Flow Quality

Earnings quality is high: OCF/Net Income at 1.93x signals strong cash conversion and low accrual risk. Free cash flow was -10.22 due to substantial investing CF (-61.98), while maintenance capex was light (-2.27), implying outflows are likely strategic (investments, intangibles/M&A). Working capital: Receivables of 42.64 equate to ~19.6% of sales (~71 DSO) and inventories are small at 6.22; no signs of aggressive working capital release boosting OCF—indeed, OCF strength appears operational. Sustainability: With strong OCF and large cash reserves, funding growth and potential dividends/buybacks is feasible despite near-term negative FCF from investments.

Dividend Sustainability

Dividend data are unreported; the company appears either non-dividend paying or maintains a negligible payout. Payout ratio and FCF coverage are not calculable. Capacity: Given positive OCF, net cash, and modest capex needs, the financial capacity to introduce or grow a dividend exists. Policy outlook: With ROIC at 5.2% and active investing CF, management may prioritize reinvestment over distributions until returns improve; any future payout would be easily covered by OCF if instituted at a conservative level.

Risk Assessment

Business Risks:

• Execution risk on rapid growth potentially pressuring delivery capacity and margins
• Pricing and competitive intensity in AI/software solutions leading to margin compression
• Customer concentration and large-project timing risk (not disclosed but typical for the sector)
• Talent retention and wage inflation risk affecting SG&A and gross margin
• Goodwill and intangible asset impairment risk given goodwill 129.42 and intangibles 66.05

Financial Risks:

• High effective tax rate (41.4%) suppressing net margin and ROE
• Refinancing risk on short-term loans (75.07), mitigated by large cash balance
• ROIC at 5.2% below common 7–8% targets, indicating return dilution from capitalized assets
• Potential volatility in investing cash flows from acquisitions or strategic investments

Key Concerns:

• Slight operating margin compression (~50 bps YoY) despite strong revenue growth
• Negative FCF driven by heavy investment outflows; sustainability depends on OCF continuity
• Limited disclosure on SG&A breakdown, recurring revenue metrics (ARR/churn), and current liabilities

Investment Implications

Key Takeaways:

• Topline growth of +28.9% translated into +25.6% operating profit growth with minor margin pressure
• High-quality cash earnings: OCF/NI at 1.93x; negative FCF reflects strategic investment, not weak operations
• Balance sheet strength with net cash (~97) and equity ratio 63.4% reduces financial risk
• ROE at 7.7% and ROIC at 5.2% suggest room to improve capital efficiency amid a large goodwill/intangibles base
• Tax rate at 41.4% is a material headwind to net profit scalability if not normalized

Metrics to Watch:

• Operating margin trend and SG&A intensity versus revenue growth
• ARR, churn, and backlog (when disclosed) to gauge durability of growth
• ROIC progression and asset turnover improvement
• Effective tax rate trajectory
• Working capital metrics (DSO/DPO) and OCF/NI ratio sustainability
• Scale of investing cash outflows and any M&A-related disclosures
• Goodwill/intangible impairment testing outcomes

Relative Positioning: Relative to Japanese software/AI peers, the company exhibits above-average revenue growth and strong EBITDA/operating margins, supported by a net cash balance. However, capital efficiency (ROIC ~5%) lags best-in-class peers and the elevated tax rate caps ROE, making future margin discipline and returns improvement key differentiators.

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