AI CROSS Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.90B
• Operating Income: ¥273M
• Net Income: ¥192M
• EPS: ¥32.20

Income Statement

Balance Sheet

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

AI CROSS (44760) reported FY2025 Q3 year-to-date consolidated results under JGAAP showing resilient top-line growth but clear margin compression and softer bottom-line performance. Revenue rose 6.7% year over year to ¥2,905 million, indicating steady underlying demand. Gross profit is reported at ¥958 million with a gross margin of 33.0%, consistent with a communications/CPaaS-like mix where carrier fees and platform costs keep gross margin in the low- to mid-30% range. Operating income declined 21.3% YoY to ¥273 million, pointing to negative operating leverage as selling, general, and administrative expenses outpaced revenue growth. Ordinary income was ¥275 million and net income was ¥120 million, translating to a 4.13% net margin and an ROE of 6.45% per the provided DuPont bridge. Asset turnover of 1.236 and low financial leverage of 1.26 suggest returns are driven more by operating efficiency than balance sheet leverage. Liquidity metrics are strong, with a current ratio of 312.9% and working capital of approximately ¥1,450 million, supporting operating flexibility. The debt-to-equity ratio of 0.37x and very high interest coverage (2,256x) indicate low financial risk from leverage and minimal interest burden. Cash flow data are not disclosed in this dataset (zeros represent unreported figures), so operating cash flow and free cash flow quality cannot be verified; this is a key limitation to the analysis. The stated equity ratio is 0.0% (unreported), but total equity of ¥1,861 million versus liabilities of ¥681 million implies a conservative capital structure. EPS is ¥32.20, but share count data are not available in this extract, limiting per-share trend analysis. The company does not pay a dividend (DPS ¥0), and payout ratio is 0%, consistent with a reinvestment stance typical of growth-stage platforms. The decline in operating and net income despite revenue growth suggests cost pressures (personnel, marketing, system and network costs) or mix effects are diluting operating margin. Tax expense of ¥129 million versus net income of ¥120 million implies a normalized tax burden; however, the reported effective tax rate metric (0.0%) appears not meaningful given the data structure. Overall, the business shows healthy top-line momentum, sound liquidity, and low leverage, but near-term profitability is under pressure, and the absence of cash flow disclosure constrains confidence in earnings quality. Management’s ability to stabilize gross margin and rein in opex intensity will be central to sustaining ROE above mid-single digits.

Profitability Analysis

ROE decomposes to 6.45% from a 4.13% net margin, 1.236x asset turnover, and 1.26x financial leverage, indicating a returns profile driven primarily by operating margin and turnover rather than leverage. Gross margin is reported at 33.0%, aligning with a usage-based messaging/platform model where carrier costs and third-party fees constrain gross spread. Operating margin is approximately 9.4% (¥273m/¥2,905m), down YoY given operating income decline on higher revenue, reflecting negative operating leverage. Ordinary margin (~9.5%) is close to operating margin, consistent with minimal interest burden (interest expense ¥0.121m). The drop in operating income (-21.3% YoY) against +6.7% revenue implies elevated opex (e.g., sales/marketing for customer acquisition, R&D/platform investments, or higher personnel costs). Net margin at 4.13% leaves limited buffer for execution missteps; sustaining profitability will require tighter opex control or mix improvements lifting gross margin. With financial leverage at 1.26x and interest coverage of 2,256x, balance sheet leverage will not be a driver of ROE enhancement; improvement must come from margins and turnover.

Growth Assessment

Revenue growth of 6.7% YoY to ¥2,905 million suggests sustained demand across core messaging/CPaaS offerings. Growth appears organic and volume-driven; however, absent segment detail, the contribution from new services versus existing accounts is unclear. Profit growth is weaker: operating income down 21.3% YoY and net income down 37.1% YoY indicate cost intensity outpacing revenue gains. This divergence suggests either mix shift toward lower-margin services, higher network/carrier pass-through costs, or step-up in growth investments. Asset turnover at 1.236 indicates efficient utilization of the asset base, supporting scalability if margins can be stabilized. Near-term outlook hinges on controlling opex growth and improving gross margin through pricing, product mix, or procurement optimization. Without cash flow and backlog metrics, revenue sustainability cannot be fully validated; retention rates, cohort behavior, and unit economics will be important to confirm durable growth momentum.

Financial Health

Liquidity is robust: current ratio 312.9% and quick ratio 312.9% indicate ample short-term coverage, consistent with a low-inventory, services-oriented model. Working capital of approximately ¥1,450 million provides flexibility for growth initiatives and buffer against receivable cycles. Solvency appears strong: debt-to-equity of 0.37x and extremely high interest coverage signify low financial risk from leverage. The equity base is sizeable at ¥1,861 million relative to reported liabilities of ¥681 million, implying a conservative capital structure. While the equity ratio is shown as 0.0% (unreported), the provided balances suggest an equity-heavy profile. Note: some subtotals in the provided balance figures do not tie perfectly; analysis relies on the given ratios for solvency insights.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this dataset (zeros indicate unreported figures), so standard cash conversion and free cash flow assessments cannot be performed. The reported OCF/Net Income ratio of 0.00 and FCF of 0 are not economically meaningful here. In the absence of OCF and capex data, we infer earnings quality from margins and leverage: minimal interest expense and low leverage reduce risk of financial engineering, but the drop in operating income suggests near-term earnings susceptibility to cost inflation. Working capital appears ample, but without receivables/payables detail we cannot evaluate cash conversion cycle or collections risk. Key missing items for a full quality assessment are OCF, capex, changes in working capital, and any capitalization of development costs.

Dividend Sustainability

The company pays no dividend (DPS ¥0) with a payout ratio of 0%, aligning with a reinvestment-oriented stance suitable for growth-stage platforms. Without OCF/FCF disclosure, we cannot assess dividend capacity on a cash basis; however, given modest net income (¥120m) and ongoing investment needs, a conservative distribution policy appears prudent. Absent a formal dividend policy in the provided data, we assume capital allocation remains focused on organic growth and platform enhancement. Any future initiation of dividends would depend on improving and stabilizing operating margins and demonstrating consistent positive free cash flow.

Risk Assessment

Business Risks:

• Margin pressure from carrier/network cost inflation and pass-through pricing dynamics
• Negative operating leverage if opex growth (personnel, sales/marketing, R&D) exceeds revenue growth
• Customer concentration and churn risk typical of B2B communications platforms
• Competitive intensity in CPaaS/messaging services impacting pricing and gross margin
• Regulatory and compliance changes (messaging rules, data privacy) affecting service delivery and costs
• Technology/platform reliability and cybersecurity risks that could impact service continuity and reputation

Financial Risks:

• Earnings volatility given thin net margin (4.13%) and operating margin compression
• Cash conversion uncertainty due to unavailable OCF/FCF data in this period
• Potential tax rate normalization impacts on net income variability
• Limited ability to use leverage to amplify returns given already low debt and focus on organic investment

Key Concerns:

• Operating income down 21.3% YoY despite 6.7% revenue growth, indicating cost pressures
• Lack of cash flow disclosure, constraining assessment of earnings quality and FCF coverage
• Gross margin at 33.0% leaves modest room for error; further cost inflation could compress profits
• ROE at 6.45% relies on margin and turnover, not leverage; improvement requires operational execution

Investment Implications

Key Takeaways:

• Top-line growth remains positive at +6.7% YoY, but profitability is under pressure
• ROE of 6.45% is modest and primarily operationally driven; leverage is not a catalyst
• Strong liquidity (current ratio 313%) and low leverage (D/E 0.37x) reduce balance sheet risk
• Absent OCF/FCF data, confirmation of cash earnings is a priority before reassessing margin durability
• Cost discipline and gross margin management are pivotal to re-accelerate earnings

Metrics to Watch:

• Gross margin trajectory and carrier cost pass-through effectiveness
• SG&A as a percentage of revenue and hiring trend
• Operating margin and unit economics (ARPU, churn, cohort retention if disclosed)
• Operating cash flow and free cash flow once reported
• Asset turnover and working capital days (DSO/DPO) to monitor cash conversion
• Tax rate normalization and its effect on net margin

Relative Positioning: Within Japan small-cap communications/platform peers, AI CROSS shows decent revenue growth and superior liquidity with conservative leverage, but weaker near-term earnings momentum due to margin compression; sustained improvement hinges on operating efficiency and cash conversion visibility.

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