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

PKSHA Technology (3993) delivered strong topline and solid profitability in FY2025 Q4 under IFRS on a consolidated basis. Revenue rose 28.9% YoY to 217.71, demonstrating robust demand across AI/software solutions. Operating income increased 25.6% YoY to 39.22, implying an operating margin of 18.0% (39.22/217.71), a slight margin dilution versus revenue growth but still healthy for a software-centric model. Net income grew 28.8% YoY to 26.83, translating into a net margin of 12.3% and basic EPS of 86.47 yen on an average share count of 31.03 million. Gross profit of 85.32 implies a 39.2% gross margin, supporting the view that solution mix and scale efficiencies remain favorable. EBITDA of 56.50 (26.0% margin) indicates ample operating cash generation capacity relative to revenue. The DuPont decomposition yields ROE of 7.7% (12.3% net margin × 0.400 asset turnover × 1.57x leverage), with ROA approximating 4.9%, consistent with a capital-light software business with positive but moderate leverage. Cash and equivalents were 193.58, suggesting a strong liquidity buffer and likely net cash after accounting for total loans disclosed. Operating cash flow was 51.76 (OCF/NI of 1.93x), indicating high earnings quality and good cash conversion. Free cash flow defined as OCF plus total investing cash flows was negative at -10.22 due to sizable investment outflows (-61.98), likely reflecting M&A or strategic investments rather than capex (capex was modest at -2.17). The balance sheet is conservative with an equity ratio of 63.4% and debt-to-equity of 0.27x (per reported metric), complemented by a large cash position. While several items are unreported (ordinary income, detailed R&D, interest expense, current liabilities), the available data show healthy fundamentals. Reported XBRL margin/ROA ratios appear inconsistent with the period’s P/L (e.g., reported operating margin 0.2%), so we rely on calculated ratios from disclosed financials. Working capital data are incomplete as current liabilities are unreported, but receivables (25.93) and inventories (6.25) look manageable relative to revenue scale. Dividends are unreported; retained earnings increased to 74.81, indicating reinvestment capacity. Overall, PKSHA exhibits strong growth, resilient margins, high-quality cash generation, and a solid balance sheet, with negative FCF driven by intentional investment for future growth rather than operating weakness.

Profitability Analysis

ROE (DuPont): 7.7% = 12.3% net margin × 0.400 asset turnover × 1.57x financial leverage. Net margin of 12.3% (26.83/217.71) is healthy for an AI/software vendor, supported by an operating margin of 18.0% and EBITDA margin of 26.0%. Gross margin of 39.2% indicates reasonable pricing power and a mix that includes services and possibly lower-margin project components; scope for mix optimization remains. Operating leverage: revenue +28.9% YoY vs operating income +25.6% YoY suggests mild margin dilution this period, likely from growth investments or project mix; still, scale benefits are visible in absolute profit growth. Tax rate at 26.3% is broadly aligned with statutory levels, implying limited structural tax advantages. Asset turnover at 0.400 is typical for software firms with substantial cash and intangibles; efficiency improvements could lift ROE if growth persists. Financial leverage at 1.57x remains conservative, indicating ROE is predominantly driven by operations rather than leverage. Overall, profitability quality is solid, with EBITDA comfortably above D&A (17.28) and OCF exceeding net income.

Growth Assessment

Revenue growth of 28.9% YoY to 217.71 underscores healthy demand for PKSHA’s AI/algorithm solutions and potential contribution from enterprise-scale deployments. Operating income up 25.6% YoY, while slightly lagging revenue growth, still demonstrates durable profitability through scale. Net income rose 28.8% YoY, consistent with operating trends and a stable effective tax rate. Growth quality appears strong given OCF/NI of 1.93x and modest capex needs (-2.17), suggesting an asset-light model. The negative FCF (-10.22) is driven by strategic investing CF (-61.98), likely M&A or minority investments to expand capabilities or client access, which may support future growth. With inventories small (6.25) and receivables moderate (25.93), execution risk from physical supply is low; growth hinges more on project pipeline and enterprise adoption cycles. Outlook considerations: backlog/ARR (not disclosed) and client concentration will drive sustainability; ongoing investments suggest management is leaning into growth opportunities. In the absence of segment disclosure, we infer revenue expansion is broad-based and supported by strong domestic AI demand, with potential upside from cross-selling and upselling within existing enterprise clients.

Financial Health

Liquidity: Cash and equivalents of 193.58 provide a sizable cushion; current assets total 196.84, but current liabilities are unreported, preventing calculation of current/quick ratios. Solvency: Equity ratio is 63.4% (equity 346.99/ assets 543.68), indicating a conservative capital structure. Leverage: Reported debt-to-equity is 0.27x; disclosed loans include 9.19 short-term and 27.96 long-term (total 37.15), and with cash of 193.58 the company likely holds a net cash position. Interest coverage cannot be computed due to unreported interest expense, but EBITDA of 56.50 and OCF of 51.76 suggest ample coverage capacity. Working capital: With incomplete current liability data, the reported working capital figure (196.84) appears to reflect current assets alone; nonetheless, receivables (25.93) vs payables (7.65) and low inventories imply manageable operating liquidity. Overall financial health is strong, underpinned by high equity and cash buffers.

Cash Flow Quality

Earnings quality is high: OCF/Net income is 1.93x (51.76/26.83), indicating solid cash conversion and limited accrual risk. EBITDA (56.50) comfortably exceeds D&A (17.28), supporting non-cash add-backs and cash generation. Free cash flow defined as OCF plus total investing cash flows was -10.22, driven by heavy investing outflows (-61.98); core maintenance capex was minimal at -2.17, suggesting the negative FCF reflects strategic investments (e.g., M&A, intangibles, or financial assets) rather than operating strain. Working capital specifics are limited due to unreported current liabilities, but receivables (25.93) and inventories (6.25) are modest relative to revenue, indicating a short cash conversion cycle typical of software/service companies. The positive financing CF (48.93) suggests the company raised debt or other financing to support investments while preserving cash balances. Overall, cash flow quality is solid, with strategic outflows deliberately funding growth.

Dividend Sustainability

Dividends are unreported for the period, and payout ratios cannot be calculated. Retained earnings stand at 74.81, and equity is 346.99, indicating ample capacity to reinvest. Given negative FCF owing to investment activities and a growth-oriented profile, internal funding appears prioritized over distributions. If/when dividends are considered, coverage from OCF would likely be strong given OCF of 51.76 and modest capex needs; however, sustainability would depend on the scale and timing of future investment outlays. With no disclosed dividend policy metrics (DOE, payout), we assume a reinvestment-focused stance until clearer guidance is provided.

Risk Assessment

Business Risks:

• Client concentration and project-based revenue timing typical of enterprise AI implementations
• Competitive pressure from domestic and global AI/software vendors, including hyperscalers
• Execution risk in large deployments and potential delays in acceptance/revenue recognition
• Talent acquisition and retention in AI engineering and product development
• Regulatory and governance changes around AI usage, data privacy, and security
• Dependence on continued enterprise IT budgets and macro conditions affecting digital transformation
• Integration risk from M&A or strategic investments inferred from large investing cash outflows

Financial Risks:

• Interest rate and refinancing risk on loans (9.19 short-term, 27.96 long-term) despite overall net cash
• Potential volatility in OCF from project milestone billing and receivable collections
• Investment securities/intangibles exposure not disclosed, limiting visibility on valuation/impairment risk
• Limited disclosure of current liabilities impedes precise liquidity assessment
• Potential currency exposure if overseas sales expand (not disclosed)

Key Concerns:

• Negative free cash flow due to sizable investment outflows; need clarity on returns and payback
• Slight margin dilution relative to revenue growth, suggesting mix or investment-related pressure
• Lack of disclosure on R&D and ordinary income/interest, constraining full profitability diagnostics

Investment Implications

Key Takeaways:

• Strong revenue growth (+28.9% YoY) with healthy operating margin (~18%) and net margin (~12%)
• High earnings quality with OCF/NI at 1.93x; EBITDA margin of 26% supports cash generation
• Balance sheet strength: equity ratio 63.4% and substantial cash (193.58) likely implying net cash
• Negative FCF (-10.22) driven by strategic investing CF (-61.98), not core capex
• ROE at 7.7% driven mainly by operating performance rather than leverage (1.57x assets/equity)

Metrics to Watch:

• Backlog/ARR and customer concentration metrics
• Operating margin trajectory and gross margin mix trends
• OCF to net income ratio and working capital turns (DSO/DPO) as liabilities disclosure improves
• Scale and nature of investing cash outflows (M&A vs. internal development), and subsequent returns
• Net cash position and debt maturity/interest terms once fully disclosed
• R&D intensity and capitalization policy impacts on EBITDA/OCF

Relative Positioning: Within Japan-listed software/AI peers, PKSHA combines above-market revenue growth with mid-to-high teens operating margins, strong cash conversion, and a conservative balance sheet, positioning it as a growth-oriented but financially disciplined operator; visibility on recurring revenue metrics and investment returns will be key for sustained relative strength.

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