MEDLEY,INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥27.54B
• Operating Income: ¥1.61B
• Net Income: ¥2.35B
• EPS: ¥34.72

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: Strong top-line growth but pronounced margin compression and earnings heavily supported by below-the-line gains in FY2025 Q3. Revenue grew 27.2% YoY to 275.36, underscoring solid demand momentum. Gross profit reached 139.93 with a gross margin of 50.8%, indicating the core unit economics remain healthy. Operating income declined 31.7% YoY to 16.11, driving operating margin down to 5.9%. Based on implied prior-period figures, operating margin compressed by roughly 504 bps (from ~10.9% to 5.9%). Net income fell 52.0% YoY to 11.14, with net margin at 4.0%. Implied net margin contracted by about 667 bps YoY (from ~10.7% to 4.0%). Ordinary income decreased 54.9% YoY to 16.81, highlighting deterioration in recurring profitability. Profit before tax of 37.30 exceeded ordinary income, implying sizable extraordinary gains (~20.5) this period that flattered pre-tax results. Non-operating income of 17.67 was large relative to operating income, and the non-operating income ratio is flagged at 158.6%, signaling elevated reliance on non-core items. Interest coverage remains robust at 40.3x (OI/interest expense), indicating no immediate servicing stress. Liquidity is adequate with a current ratio of 141.5%, though slightly below the 150% preferred benchmark. The balance sheet shows high intangibles (236.72) and goodwill (131.03), elevating impairment risk and depressing tangible equity. Leverage is somewhat elevated at 1.64x D/E; equity ratio is approximately 37.8% (163.02/430.99). With operating cash flow unreported, earnings quality cannot be validated against cash conversion this quarter. Forward-looking, the key to restoring ROE (6.8%) and ROIC (5.3%) will be reining in SG&A intensity and sustaining revenue growth without relying on extraordinary or non-operating gains.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.8% = Net Profit Margin 4.0% × Asset Turnover 0.639 × Financial Leverage 2.64x. The most material change appears to be in net profit margin, which compressed sharply as operating income fell 31.7% YoY despite 27.2% revenue growth. Business driver: SG&A expenses (116.35) ran high at ~42.2% of revenue, indicating negative operating leverage; combined with a higher effective tax rate (37.1%) and reliance on non-operating/extraordinary items, core profitability deteriorated. Sustainability: The margin compression looks partly cyclical/strategic (growth investments raising personnel and marketing costs) rather than purely one-time; without visible cost discipline, recovery may be gradual. Asset turnover at 0.639 reflects a growing asset base (notably intangibles and goodwill) outpacing revenue efficiency; absent strong organic growth, AT may remain subdued. Leverage (2.64x in DuPont terms; 1.64x D/E) is propping up ROE; this is a financial, not operational, driver and not a substitute for margin improvement. Concerning trends: Revenue growth (+27.2%) outpaced operating profit (-31.7%), implying SG&A growth > revenue growth and a deterioration in operating margin to 5.9%.

Growth Assessment

Top-line growth of 27.2% YoY to 275.36 is robust and indicates continued market penetration. However, operating income declined 31.7% YoY, and ordinary income declined 54.9% YoY, reflecting pressure on recurring earnings. Net income dropped 52.0% YoY to 11.14, and net margin fell to 4.0%, driven by higher SG&A intensity and a higher effective tax rate (37.1%). Current profitability is buoyed by non-operating and extraordinary items (PBT 37.30 significantly above ordinary income 16.81), which are not recurring growth drivers. Near-term outlook hinges on the company's ability to moderate SG&A growth relative to revenue and convert growth into operating profit. With ROIC at 5.3% (below the 7–8% target range), incremental growth needs to be disciplined and return-accretive. Without OCF disclosure, sustainability of growth investments cannot be validated through cash generation this quarter.

Financial Health

Liquidity: Current ratio 141.5% and quick ratio 137.9% indicate adequate short-term coverage; no warning (<1.0) triggers. Solvency: Debt-to-equity is 1.64x, modestly above the conservative benchmark (<1.5x); nonetheless, interest coverage is strong at 40.3x, mitigating near-term risk. Capital structure: Long-term loans total 132.42 versus cash and deposits of 105.28, implying net debt position when excluding other cashable assets; equity ratio is ~37.8% (163.02/430.99). Maturity mismatch: Current assets (160.76) exceed current liabilities (113.58), suggesting manageable near-term obligations; short-term loans are unreported, limiting visibility on exact near-term debt service. Asset quality: Intangibles (236.72) and goodwill (131.03) are high, raising impairment sensitivity and reducing tangible equity buffers. Off-balance sheet: No off-balance sheet obligations reported in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed this quarter. Accordingly, we cannot compute FCF or FCF coverage of dividends and capex. Earnings quality flags: Heavy contribution from non-operating and extraordinary items (PBT well above ordinary income) clouds the quality of earnings. Working capital positioning appears stable (working capital 47.18), but without cash flow details, we cannot confirm whether receivables growth or other working capital changes are affecting cash conversion. No explicit signs of working capital manipulation can be inferred from the limited data.

Dividend Sustainability

Dividend information is unreported; payout ratio and FCF coverage are not calculable. With OCF and capex unreported, we cannot assess coverage from internal cash generation. Given net income compression and elevated SG&A investment, a conservative stance on distributions would be consistent with protecting balance sheet resilience, but policy details are unavailable. No guidance or dividend policy signals are provided in the data.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A intensity (SG&A ~42.2% of revenue) despite strong revenue growth
• Dependence on non-operating and extraordinary gains to support pre-tax earnings in the quarter
• Execution risk in scaling while maintaining unit economics (operating margin compressed to 5.9%)
• Potential for higher effective tax burden (37.1%) reducing net profitability

Financial Risks:

• Moderately elevated leverage (D/E 1.64x) relative to conservative benchmark
• High goodwill (131.03) and intangibles (236.72) increase impairment risk and reduce tangible equity
• OCF unreported, limiting visibility into cash conversion and funding of growth investments
• Net debt likely positive given long-term loans 132.42 and cash 105.28

Key Concerns:

• Ordinary income fell 54.9% YoY, indicating deterioration in recurring earnings power
• Net margin contraction of ~667 bps YoY to 4.0%
• ROIC at 5.3% below the 7–8% target range, suggesting suboptimal capital deployment returns
• Potential volatility if extraordinary gains do not recur in subsequent quarters

Investment Implications

Key Takeaways:

• Revenue growth is strong (+27.2% YoY), but operating leverage is negative as operating income fell 31.7% YoY
• Operating margin compressed by roughly 504 bps to 5.9%; net margin down to 4.0% (~667 bps contraction)
• Pre-tax results benefited from extraordinary items (PBT 37.30 vs ordinary income 16.81)
• Balance sheet liquidity is adequate (current ratio 141.5%), but leverage is somewhat elevated (D/E 1.64x) with high intangibles
• ROE 6.8% is sustained partly by financial leverage; improving margins and asset turnover are necessary for quality ROE gains
• ROIC 5.3% signals need for more disciplined, return-accretive growth

Metrics to Watch:

• Operating margin and SG&A as a percentage of revenue (targets: stabilization and sequential improvement)
• Ordinary income trajectory vs. non-operating/extraordinary contributions
• OCF/Net Income once disclosed (benchmark >1.0) and FCF generation
• Goodwill/intangibles impairment indicators and segment profitability
• Leverage trend (D/E) and net debt vs. cash, alongside interest coverage sustainability

Relative Positioning: Within domestic healthcare/HR-tech peers, Medley exhibits above-average revenue growth but weaker margin resilience and lower ROIC, with higher reliance on non-core gains this quarter and a balance sheet more weighted to intangibles.

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