Accrete Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.58B
• Operating Income: ¥346M
• Net Income: ¥122M
• Earnings per Unit (EPU): ¥25.47

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: FY2025 Q3 was a solid beat on profitability with clear operating leverage, while net margin improvement was modest due to a higher tax burden and minimal non-operating contribution. Revenue rose 19.0% YoY to 55.83, with operating income up 74.6% YoY to 3.46 and ordinary income up 75.5% to 3.41, underscoring stronger core execution. Net income increased 22.7% YoY to 1.63, translating to EPS of 25.47 JPY on 6.41 million average shares. Gross profit reached 11.07, and SG&A was 9.09, implying healthy flow-through to operating profit. Operating margin improved to 6.2% (3.46/55.83), while net margin stands at 2.9% (1.63/55.83). We estimate operating margin expanded by roughly 198 bps YoY (from ~4.22% to ~6.20%), indicating meaningful operating leverage. Net margin improved by about 9 bps YoY (from ~2.83% to ~2.92%), tempered by a 37.1% effective tax rate and low non-operating income (0.02) versus expenses (0.06). Ordinary margin sits at 6.1%, closely tracking operating margin, confirming limited reliance on non-operating gains. Financial position is strong with current ratio at 245.9%, equity ratio estimated at ~61.0%, and interest coverage at ~70x, supporting ongoing investment capacity. Balance sheet quality is anchored by cash and deposits of 16.59 against long-term loans of 6.85, implying at least ~9.7 of net cash. ROE (DuPont) is 4.5%, driven by modest net margin and solid asset turnover (0.933) with low-to-moderate leverage (1.64x). ROIC is indicated at 8.1%, aligning with management-level targets for value creation. Cash flow data are unreported, so earnings quality via OCF conversion cannot be validated this quarter. Intangibles are sizeable (17.17, including 6.75 goodwill), which introduces future impairment sensitivity but is currently supported by growth. Forward-looking, continued revenue expansion and SG&A discipline should sustain operating margin gains, though net margin upside will depend on tax normalization and better OCF conversion when disclosed.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (2.9%) × Asset Turnover (0.933) × Financial Leverage (1.64x) = ~4.5% ROE (matches reported). The largest YoY change driver is margin improvement at the operating level: operating income grew +74.6% on +19.0% revenue, lifting operating margin from ~4.22% to 6.20% (+198 bps). This likely reflects operating leverage from scale (fixed-cost dilution in platform/SG&A) and potentially improved gross-to-net take rates; non-operating effects were negligible. The sustainability appears reasonable if growth continues and cost discipline holds; however, elevated effective tax (37.1%) muted net margin gains and could continue to cap ROE unless it normalizes. Ordinary income tracked operating income closely (limited one-offs), supporting quality of profit mix. Watchpoints: Without SG&A YoY detail, we cannot confirm if SG&A growth remained below revenue; the current SG&A-to-sales is 16.3%, which looks efficient but needs trend confirmation. Net margin expansion was modest (+9 bps) due to taxes and small non-operating loss (net), so further ROE improvement requires either continued operating margin expansion or better asset efficiency.

Growth Assessment

Top-line growth was robust at +19.0% YoY to 55.83, indicative of healthy demand in core messaging/authentication services. Operating profit surged +74.6%, signaling strong operating leverage from scale and cost control. Ordinary income (+75.5%) corroborates that growth was operationally driven, not reliant on financial one-offs. Net income rose +22.7%; the delta versus operating profit growth reflects the 37.1% effective tax rate and small net non-operating expenses. Gross margin at 19.8% supports improved contribution, though prior-year gross margin is not disclosed for change analysis. Revenue sustainability appears supported by secular adoption of A2P messaging/OTP, but competitive pricing and carrier fee dynamics could moderate growth. The profit quality mix is favorable (operating-led), and ROIC at 8.1% implies value-accretive growth. Outlook hinges on maintaining volume growth and stabilizing unit economics; tax normalization could unlock additional net margin upside. Data gaps (no segment, no OCF) limit depth of growth quality assessment this quarter.

Financial Health

Liquidity is strong: current ratio 245.9% and quick ratio 245.9%, with current assets of 36.61 comfortably covering current liabilities of 14.89. No warning triggers: current ratio well above 1.0 and D/E at 0.64x within conservative range. Solvency is solid: total equity 36.53 versus total assets 59.85 implies an equity ratio of ~61.0%. Debt profile: long-term loans of 6.85 with no short-term loans disclosed; cash and deposits are 16.59, indicating at least ~9.7 net cash. Maturity mismatch risk appears low given ample liquidity and limited disclosed short-term debt. Intangibles are sizeable at 17.17 (including goodwill 6.75), raising medium-term impairment sensitivity if growth slows. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; we therefore cannot validate earnings-to-cash conversion this quarter. Free cash flow and capex are also unreported, preventing FCF sustainability analysis for growth investments and potential dividends. Working capital composition (AR 12.23 vs AP 6.14) is typical for a service platform business; however, without cash flow details, we cannot identify potential working capital-driven earnings smoothing. Interest coverage at ~70x suggests low cash interest burden, supporting resilience even if OCF is temporarily weaker. We will reassess cash conversion once OCF and capex data become available.

Dividend Sustainability

Dividend data are unreported this quarter, so payout ratio and FCF coverage cannot be calculated. Balance sheet capacity for dividends appears adequate given at least ~9.7 of net cash and strong liquidity, but visibility is limited without OCF and capex. Retained earnings of 19.28 and ROIC at 8.1% suggest room to balance reinvestment and potential shareholder returns, contingent on cash generation. Policy outlook remains unclear due to missing disclosures; monitor upcoming full-year results for DPS guidance and payout framework.

Risk Assessment

Business Risks:

• Pricing pressure and carrier fee changes in A2P/SMS authentication that can compress gross margins.
• Customer concentration risk if top accounts drive a disproportionate share of volumes.
• Competition from alternative authentication methods (app-based, push, FIDO) reducing SMS volumes over time.
• Regulatory and data privacy changes affecting messaging flows and costs.
• Execution risk integrating/intensifying use of intangibles (platform and goodwill-backed acquisitions).

Financial Risks:

• Intangible asset and goodwill impairment risk (intangibles 17.17 including goodwill 6.75).
• Tax rate volatility (effective tax 37.1%) impacting net margin and ROE.
• Potential working capital swings (AR 12.23 vs AP 6.14) affecting short-term OCF.
• Debt presence (long-term loans 6.85) though mitigated by cash 16.59; refinancing risk appears low currently.

Key Concerns:

• Lack of OCF/FCF disclosure this quarter prevents validation of earnings quality.
• Net margin improvement lagging operating margin due to elevated taxes and small net non-operating expense.
• High dependence on intangible assets to drive growth introduces impairment sensitivity if growth decelerates.

Investment Implications

Key Takeaways:

• Strong operating leverage: operating income +74.6% on revenue +19.0%; operating margin ~6.2% (+~198 bps YoY).
• Net margin improved only modestly (~+9 bps YoY) due to a ~37% tax rate and minor net non-operating expense.
• Balance sheet robust: current ratio ~246%, equity ratio ~61%, interest coverage ~70x, and at least ~9.7 net cash.
• ROE at 4.5% is constrained by low net margin; ROIC at 8.1% indicates value-accretive operations.
• Data gaps on OCF/FCF and dividends limit assessment of cash-backed sustainability.

Metrics to Watch:

• OCF/Net Income and working capital movements (AR and AP) when cash flow is disclosed.
• Gross margin and carrier cost pass-through to confirm durability of unit economics.
• SG&A growth vs revenue to gauge operating leverage sustainability.
• Effective tax rate trajectory and any tax planning updates.
• ROIC vs WACC and incremental returns on growth investments.
• Net cash position and any changes in long/short-term debt.

Relative Positioning: Within Japan small-cap, communications/authentication services peers, the company shows above-peer operating leverage this quarter with conservative leverage and strong liquidity; however, its ROE trails higher-multiple peers due to modest net margins and a high tax rate. Confirmation of cash conversion and sustained margin gains would improve the quality profile.

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