freee K.K. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥9.74B
• Operating Income: ¥271M
• Net Income: ¥170M
• EPS: ¥2.61

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

Verdict: Solid top-line growth with marginal operating improvement, but weaker ordinary/net profit points to lingering non-operating drag and low capital efficiency. Revenue rose 32.1% YoY to 97.43, evidencing strong demand and customer expansion typical of a scaling SaaS model. Operating income increased 27.2% YoY to 2.71, but ordinary income fell 8.8% YoY to 1.49 and net income declined 9.1% YoY to 1.54 as non-operating costs outweighed modest operating gains. Gross margin printed at 62.6%, consistent with software economics, while operating margin was about 2.8%. Operating margin likely compressed slightly by roughly 10 bps YoY, given revenue outgrew operating profit. Net margin stood at 1.6%, reflecting continued investment phase and non-operating burdens. Effective tax rate was very low at 3.7%, supporting bottom line despite weaker ordinary income. The balance sheet shows ample liquidity with cash and deposits of 316.66 against current liabilities of 292.28, and a current ratio of 147.5%. Leverage is moderate (D/E 1.55x; financial leverage 2.55x), with short-term loans of 92.00 notable for near-term refinancing/rollover attention. ROE calculated at 0.8% remains subdued due to thin margins and low asset turnover (0.192), and ROIC was flagged at -10.3%, underscoring capital efficiency challenges. Interest coverage is strong at 25x, indicating manageable financing costs relative to earnings. Earnings quality cannot be confirmed because operating cash flow was unreported; therefore, the durability of profit improvement is uncertain. Retained earnings are negative (-79.80), highlighting cumulative losses typical of growth-stage SaaS but a constraint on capital flexibility absent continued revenue scaling. Non-operating items were a net headwind (income 0.04 vs expenses 0.54), keeping ordinary profit below operating profit. Forward-looking, sustaining >30% revenue growth with disciplined SG&A and improving operating leverage will be critical to lift ROE/ROIC and mitigate reliance on financing. Overall, Q1 shows healthy growth and incremental operating progress, but low margins, non-operating drag, and capital efficiency remain the key issues to solve.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.8% = Net Profit Margin (1.6%) × Asset Turnover (0.192) × Financial Leverage (2.55x). The most constrained component is Net Profit Margin, given the thin operating margin (~2.8%) and non-operating drag leading to a 1.6% net margin. Asset turnover at 0.192 is also low, consistent with cash-heavy balance sheets and deferred monetization in SaaS models. Financial leverage at 2.55x provides only a modest boost and should not be the primary ROE driver going forward. The key YoY change appears to be a slight margin compression (approximately 10 bps in operating margin) as revenue growth outpaced operating income growth, indicating limited operating leverage this quarter. Business rationale: elevated SG&A to support growth (sales & marketing, R&D, and platform scaling) likely absorbed much of the gross profit upside, while non-operating expenses (0.54 vs income 0.04) reduced ordinary and net profit. Sustainability: Gross margin is structurally strong for SaaS and likely sustainable; the current margin softness looks more like timing of investments versus structural deterioration. Risks: If SG&A growth continues to exceed or closely track revenue growth, operating leverage could stall; while SG&A breakdown is unreported, the pattern (OI +27% vs sales +32%) implies higher cost intensity. Watch for any acceleration in non-operating expenses (interest, FX, valuation losses) that could keep ordinary income depressed versus operating income.

Growth Assessment

Revenue growth of 32.1% YoY to 97.43 indicates strong demand and effective customer acquisition/upsell. Operating income grew 27.2% YoY to 2.71, signaling incremental operating leverage but slightly lagging revenue scale. Ordinary income (-8.8% YoY) and net income (-9.1% YoY) softened due to non-operating expenses exceeding non-operating income. Gross margin at 62.6% remains healthy for a subscription-driven model, providing room for eventual operating margin expansion as fixed costs scale. Profit quality is mixed: operating improvement is tangible, but the bottom line is sensitive to financing/other costs. Outlook hinges on maintaining high-teens to 30%+ revenue growth while tightening SG&A efficiency to expand operating margin. With low tax burden this quarter (3.7%), further margin expansion should flow to net income if non-operating drag is contained. Key unknowns include OCF trends, deferred revenue growth, churn, and net retention, which are not disclosed here but are pivotal for assessing durability.

Financial Health

Liquidity is adequate with a current ratio of 147.5% and quick ratio of 147.5%, both above 1.0; no warning on sub-1.0 thresholds. Cash and deposits of 316.66 comfortably cover short-term loans of 92.00 and a large portion of current liabilities (292.28), reducing near-term refinancing risk. Total liabilities are 308.33 against equity of 199.37, yielding a D/E ratio of 1.55x (upper end of comfort; monitor for creep). No long-term loans were reported; most debt appears short-term, so maturity management is important even with ample cash. Working capital is positive at 138.69, and current assets (430.97) exceed current liabilities (292.28), suggesting low near-term liquidity stress. Retained earnings are negative (-79.80), indicating accumulated deficits consistent with a growth company but a constraint on shareholder equity quality. Interest coverage at 25.0x is strong; financing costs are not an immediate burden. Off-balance sheet obligations were not reported; none identified from the provided data.

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income and FCF cannot be calculated; earnings quality cannot be validated quantitatively. Absence of OCF data prevents assessment of cash conversion, working capital dynamics, and the ability to self-fund growth. With short-term loans at 92.00 and significant cash reserves (316.66), liquidity is currently comfortable, but sustainability depends on underlying OCF trends. No clear signs of working capital manipulation can be assessed due to data gaps (e.g., deferred revenue, payables timing not disclosed). Dividend and capex coverage by FCF cannot be evaluated.

Dividend Sustainability

Dividends are unreported; the company likely remains in reinvestment mode given negative retained earnings (-79.80) and modest profitability. Payout ratio and FCF coverage are not calculable due to missing cash flow data. With ROIC flagged at -10.3% and ROE at 0.8%, prioritizing reinvestment to improve unit economics and operating leverage appears consistent with growth-stage practices. Any introduction of dividends would likely require sustained positive FCF and higher operating margins.

Risk Assessment

Business Risks:

• Execution risk in scaling while improving operating leverage (SG&A intensity vs growth).
• Customer churn and net revenue retention risk typical of SaaS models.
• Competitive pressure in cloud accounting/ERP software in Japan, potentially pressuring pricing and CAC.
• Product development and platform reliability risk affecting adoption and upsell.
• Dependence on macro conditions for SMB formation and IT spending in Japan.

Financial Risks:

• Capital efficiency risk: ROIC at -10.3% indicates insufficient returns on invested capital.
• Leverage risk: D/E at 1.55x with concentration in short-term loans (92.00) requires active rollover management.
• Non-operating drag: net non-operating expenses (0.50) reducing ordinary profit.
• Potential interest rate risk increasing financing costs, though current interest coverage is strong.
• Earnings quality uncertainty due to unreported operating cash flow.

Key Concerns:

• Marginal operating margin compression (~10 bps YoY) despite strong revenue growth.
• Negative retained earnings (-79.80) and low ROE (0.8%), highlighting limited shareholder value accretion near term.
• Limited disclosure of SG&A breakdown, D&A, and cash flow, restricting assessment of sustainable profitability.
• Ordinary and net income declines despite higher operating income, emphasizing sensitivity to non-operating items.

Investment Implications

Key Takeaways:

• Top-line momentum remains strong at +32.1% YoY.
• Operating income up 27.2% but margin likely compressed slightly as costs scaled.
• Ordinary and net profit down YoY due to non-operating expenses outweighing income.
• Liquidity is solid with 316.66 in cash and current ratio at 147.5%.
• Leverage moderate-to-high (D/E 1.55x) with short-term debt reliance (92.00).
• Capital efficiency weak: ROE 0.8%, ROIC -10.3% flagged.
• Interest coverage strong at 25x limits near-term rate shock impact.

Metrics to Watch:

• ARR growth, net revenue retention, and churn (not disclosed here).
• Operating margin trajectory and SG&A as a percentage of sales.
• Operating cash flow, free cash flow, and deferred revenue movements.
• Non-operating income/expense trend and interest costs.
• Leverage mix and refinancing of short-term loans.
• Gross margin durability vs product mix and pricing.

Relative Positioning: Within Japanese SaaS peers, the company exhibits strong revenue growth and healthy gross margins but lags on capital efficiency and bottom-line scalability, with non-operating items weighing on ordinary/net profit; balance sheet liquidity is supportive, yet improving operating leverage and cash generation are necessary to close the gap with more mature peers.

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