GMO Financial Gate,Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥17.93B
• Operating Income: ¥2.23B
• Net Income: ¥1.61B
• EPS: ¥197.49

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

FY2025 Q4 capped the year with a clear profitability rebound despite a modest top-line contraction. Revenue declined 4.2% YoY to 179.3, but operating income surged 45.6% YoY to 22.3 and net income rose 61.0% YoY to 16.3, underscoring strong cost control and mix benefits. Gross margin printed at 36.9%, and operating margin climbed to 12.4%, translating into a net margin of 9.1%. Based on our reconstruction, operating margin expanded by roughly 427 bps YoY (from ~8.2% to 12.4%). Net margin expanded by about 370 bps YoY (from ~5.4% to 9.1%). EBITDA reached 28.6 (margin 16.0%), with D&A of 6.3 providing modest non-cash support. DuPont indicates a robust calculated ROE of 25.1% (NPM 9.1% × asset turnover 1.296 × leverage 2.13x), far above the reported ROE figure (0.3%), which likely reflects XBRL mapping or denominator differences rather than true performance. Operating cash flow of 12.3 was below net income (16.3), yielding an OCF/NI of 0.75x, a quality flag that tempers the profit beat. Free cash flow was positive at 3.3 after 1.3 in capex, but did not cover dividends (5.2) and buybacks (5.0), with total shareholder returns funded by cash on hand and balance-sheet flexibility. The balance sheet remains sound with equity of 64.9, long-term loans of 20.0, and cash/equivalents of 42.6, implying a net cash posture versus interest-bearing debt. Inventory (32.0) and payables (31.9) are sizable within working capital, warranting monitoring of turnover and procurement cadence. Effective tax rate was 27.7%, broadly normal. ROIC at 19.0% is excellent versus common corporate hurdles (7–8%), reinforcing productive use of capital. The year’s earnings improvement appears driven by margin discipline more than growth, suggesting that sustaining profitability hinges on stable device demand and service mix. Looking ahead, maintaining elevated margins, improving cash conversion, and managing inventory-cycle risk will be key to defending returns and funding shareholder distributions without leveraging up.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 9.1% × Asset turnover 1.296 × Financial leverage 2.13x = ROE 25.1%. The largest YoY driver was net margin expansion: operating income grew 45.6% despite a 4.2% revenue decline, implying substantial operating leverage from SG&A discipline and likely favorable revenue mix (higher-margin services vs. lower-margin hardware). Asset turnover likely softened slightly given lower revenue, but we lack prior-period asset data to quantify; leverage appears stable to modest, with total liabilities/equity at 1.13x and interest-bearing leverage low. Business reason: tighter operating costs and improved gross-to-operating conversion, possibly aided by pricing/mix and normalized installation costs post-supply-chain disruptions. Sustainability: margin gains from structural efficiencies and mix can persist, but the step-up magnitude (c. 370–430 bps) may normalize if hardware shipments rebound or competitive pricing intensifies. Watch for any SG&A growth re-acceleration outpacing revenue; current data show SG&A at 43.5, but without YoY SG&A, we cannot confirm trends. Overall, profitability quality improved at the P&L level, but is partially offset by weaker cash conversion this year.

Growth Assessment

Top line declined 4.2% YoY to 179.3, indicating subdued demand or a softer cycle in hardware deployments. Profit growth was driven by margin expansion, not revenue growth, as operating income increased 45.6% and net income 61.0%. Gross margin of 36.9% and operating margin of 12.4% suggest improved mix or cost containment; however, without segment disclosure (e.g., devices vs service/maintenance), sustainability is uncertain. EBITDA margin at 16.0% indicates headroom for continued investment, but OCF lag (0.75x NI) raises questions on working capital dynamics. Revenue sustainability hinges on merchant capex cycles and terminal refresh demand; recurring service revenue would stabilize growth if it represents a higher share, but this is unreported. Near-term outlook should focus on backlog, order intake, inventory turns, and any commentary on verticals (hospitality/retail) to gauge demand visibility. Absent new growth drivers, we expect normalized single-digit revenue trends, with profitability depending on mix and continued cost discipline.

Financial Health

Liquidity: Current assets are 108.5; current liabilities were unreported, so we cannot compute the current or quick ratios and cannot issue a ratio-based warning. Working capital appears ample, anchored by cash/equivalents of 42.6 (reported) and receivables of 24.8. Solvency: Total liabilities are 73.4 vs equity 64.9 (reported D/E 1.13x on a total-liability basis). Interest-bearing debt is modest with long-term loans of 20.0, implying net cash versus debt given cash of 42.6. No explicit maturity schedule was provided, limiting assessment of near-term refinancing needs. Maturity mismatch: Accounts payable (31.9) roughly offsets inventories (32.0), and receivables (24.8) add further cushion; we do not see evident short-term funding strain from reported items. Off-balance sheet obligations: None disclosed in the dataset. Overall, the balance sheet is conservative on an interest-bearing basis, with adequate liquidity from cash despite missing current liability detail.

Cash Flow Quality

OCF was 12.3 versus net income of 16.3 (OCF/NI 0.75x), a potential earnings quality flag. The shortfall suggests working capital absorption—likely inventory build and/or receivables timing—given positive profitability. Free cash flow was 3.3 after 1.3 in capex, positive but not sufficient to cover dividends (5.2) and buybacks (5.0); shareholder returns were effectively funded by existing cash and reductions in financing (financing CF -11.3 indicates debt repayment and distributions). Sustainability: If working capital normalizes, OCF should converge toward NI; otherwise, continued working capital needs could constrain FCF. We did not detect overt signs of manipulation, but monitor: inventory growth vs sales, DSO/DPO trends, and the persistence of OCF/NI below 0.8. With cash of 42.6 and modest debt, near-term liquidity is secure, but repeated FCF shortfalls alongside buybacks would erode flexibility.

Dividend Sustainability

Calculated payout ratio is 31.7%, comfortably below the 60% benchmark, implying earnings-based headroom. However, FCF coverage was 0.64x, so dividends were not fully funded by organic cash this year; including buybacks, total shareholder returns far exceeded FCF. Cash on hand (42.6) and low capex (1.3) mitigate near-term risk, but a sustained OCF shortfall would challenge both dividends and repurchases. Reported DOE (0.1%) and reported payout (0.5%) appear inconsistent with the earnings and cash flow data, likely due to XBRL tagging differences; we rely on calculated metrics. Base case: dividend appears maintainable on earnings capacity; continuation of sizable buybacks would depend on OCF normalization or balance-sheet drawdown.

Risk Assessment

Business Risks:

• Hardware demand cyclicality and merchant capex timing affecting device shipments
• Competitive pricing and fee pressure in in-store payments and fintech solutions
• Product mix volatility (devices vs services) impacting gross and operating margins
• Supply chain and procurement risk affecting inventory and lead times
• Regulatory and security compliance (e.g., PCI) potentially raising cost base

Financial Risks:

• OCF/NI of 0.75x indicating weaker cash conversion vs earnings
• FCF shortfall relative to dividends and buybacks, leading to reliance on cash balances
• Inventory level (32.0) relative to revenue creating risk of obsolescence or slow turns
• Metric inconsistencies in reported ratios (e.g., ROE 0.3%) complicating monitoring
• Potential FX exposure on imported hardware costs

Key Concerns:

• Sustainability of the large margin step-up amid declining revenue
• Working capital absorption driving OCF below NI
• Dependence on timing of large merchant rollouts and refresh cycles

Investment Implications

Key Takeaways:

• Strong margin-driven earnings beat with operating margin up ~430 bps YoY despite -4.2% revenue
• Calculated ROE of ~25% and ROIC ~19% highlight high capital efficiency
• Cash conversion lag (OCF/NI 0.75x) tempers the quality of earnings this year
• Balance sheet is conservative on an interest-bearing basis with net cash vs debt
• FCF did not fully cover shareholder returns; future buybacks hinge on OCF normalization

Metrics to Watch:

• Order backlog and pipeline for terminals and services
• Gross and operating margin trajectory by product/service mix
• Inventory turnover and DSO/DPO to track working capital normalization
• OCF/NI ratio (target >1.0) and FCF coverage of dividends
• Capex plans vs growth initiatives and any changes in leverage

Relative Positioning: Within Japan’s cashless enablement space, the company stands out for high ROIC and improved operating leverage, supported by a net-cash balance sheet; however, its revenue softness and weaker cash conversion versus peers with steadier recurring revenue streams suggest careful monitoring of mix and working capital execution.

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