Trend Micro Incorporated FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥202.75B
• Operating Income: ¥44.47B
• Net Income: ¥26.59B
• EPS: ¥204.86

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Trend Micro (4704) reported FY2025 Q3 consolidated results under JGAAP with essentially flat revenue at ¥202.8bn (+0.0% YoY) but solid profit expansion, highlighted by operating income of ¥44.5bn (+13.3% YoY). The mix suggests margin accretion driven by disciplined operating expense control and a high gross margin profile of 76.0%, consistent with a subscription-heavy software model. Net income was ¥26.9bn (+2.0% YoY), implying some non-operating drag as ordinary income (¥39.5bn) trailed operating income. DuPont analysis shows a robust reported ROE of 21.14%, composed of a 13.29% net profit margin, 0.523x asset turnover, and 3.04x financial leverage (assets/equity). Operating leverage appears positive: with revenue flat, operating income rose double digits, indicating cost efficiencies and possibly favorable revenue mix. Cash flow quality is strong for the period, with operating cash flow (OCF) of ¥34.5bn equating to 1.28x net income, indicating earnings backed by cash generation. Liquidity remains adequate, with a current ratio of 115% and quick ratio of 112%, while working capital stands at ¥40.6bn. Total liabilities of ¥280.9bn vs equity of ¥127.4bn imply a 2.20x liabilities-to-equity ratio, but given the subscription model, a sizable portion likely reflects deferred revenue rather than interest-bearing debt. Interest expense is not disclosed (shown as zero), and the company’s capital structure appears conservative from an interest burden standpoint. Financing cash flow was a large outflow (¥-131.5bn), consistent with shareholder returns (dividends and/or buybacks) and/or liability reductions, though details are not disclosed in the dataset. The calculated effective tax rate is shown as 0.0% in the summary metrics, but based on disclosed income tax (¥13.5bn) versus ordinary income (¥39.5bn), the implied tax burden approximates the low-to-mid 30% range. EBITDA of ¥65.1bn (32.1% margin) underscores strong underlying profitability typical for cybersecurity software. Balance sheet quality is supported by high current assets (¥307.8bn) and minimal inventories (¥8.5bn), consistent with a software business. Dividend figures and cash balances are not disclosed in this dataset (zeros indicate not reported), limiting payout and cash runway analysis. Overall, profitability, cash generation, and liquidity look sound, while revenue growth is muted, highlighting execution on cost discipline and renewals amid a competitive cybersecurity landscape. Data limitations (e.g., cash, investing CF, dividend) constrain certain conclusions; analysis focuses on disclosed non-zero figures.

Profitability Analysis

ROE_decomposition: Reported ROE is 21.14%, driven by net profit margin of 13.29% (NI ¥26.9bn / Revenue ¥202.8bn), asset turnover of 0.523x (Revenue ¥202.8bn / Assets ¥387.8bn), and financial leverage of 3.04x (Assets ¥387.8bn / Equity ¥127.4bn). Operating margin is approximately 21.9% (¥44.5bn / ¥202.8bn), and ordinary margin is 19.5% (¥39.5bn / ¥202.8bn). margin_quality: Gross margin of 76.0% reflects a high-value software/subscription mix. The lift in operating income despite flat revenue implies tighter opex control or mix shift to higher-margin offerings (e.g., cloud security, endpoint subscriptions). Ordinary income below operating income indicates non-operating headwinds (e.g., FX or other expenses). Based on income tax of ¥13.5bn versus ordinary income of ¥39.5bn, the implied effective tax rate is roughly 34% (the provided 0.0% metric is not reflective of disclosures). operating_leverage: Revenue was flat YoY while operating income rose 13.3% YoY, indicating favorable operating leverage. EBITDA margin of 32.1% and operating margin near 22% suggest sustained cost discipline and scale benefits in sales, marketing, and G&A.

Growth Assessment

revenue_sustainability: Revenue stability at ¥202.8bn with 0.0% YoY growth suggests steady renewals but limited expansion in the period. Given the subscription model, deferred revenue and billings (not disclosed) would be key for forward visibility. profit_quality: Profit growth outpaced revenue due to margin expansion. The gap between operating and ordinary income suggests some volatility below the operating line but does not detract from core operating momentum. outlook: Near-term growth depends on net retention, new logo wins, and cloud security demand. The combination of high gross margin and improving operating efficiency provides room to support growth investments without eroding profitability, assuming stable renewal dynamics and manageable FX headwinds. Data limitations on ARR/billings require caution in extrapolating growth.

Financial Health

liquidity: Current ratio 115.2% and quick ratio 112.0% indicate adequate near-term liquidity. Working capital of ¥40.6bn supports operations. Cash and equivalents are not disclosed in this dataset (shown as zero). solvency: Total liabilities of ¥280.9bn vs equity of ¥127.4bn yield a liabilities-to-equity ratio of 2.20x. Interest expense is undisclosed (shown as zero), suggesting low interest-bearing debt or immaterial interest burden. A large portion of current liabilities is likely deferred revenue, typical for subscription models, and not a solvency threat. capital_structure: Assets ¥387.8bn funded with equity ¥127.4bn and liabilities ¥280.9bn; leverage (assets/equity) at 3.04x supports the ROE. Absence of disclosed interest costs points to conservative financial risk from borrowing, though detailed debt composition is not provided.

Cash Flow Quality

earnings_quality: OCF of ¥34.5bn equals 1.28x net income (¥26.9bn), indicating solid cash conversion and supportive working capital dynamics (likely deferred revenue inflows). FCF_analysis: Free cash flow is not determinable from the dataset because investing cash flows (and capital expenditures) are not disclosed (shown as zero). EBITDA of ¥65.1bn provides capacity for investment and shareholder returns, but exact FCF is unknown. working_capital: Current assets ¥307.8bn vs current liabilities ¥267.3bn yields positive working capital of ¥40.6bn. Low inventories (¥8.5bn) reflect the software-centric model; deferred revenue likely dominates current liabilities, underpinning OCF.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed (zeros indicate unreported). With EPS at ¥204.86 and OCF at ¥34.5bn, the company appears to have capacity for distributions, but exact payout levels cannot be assessed from the provided data. FCF_coverage: FCF is not available due to missing investing cash flow and capex details; thus, FCF coverage of dividends cannot be evaluated. The large financing outflow (¥-131.5bn) suggests meaningful shareholder returns and/or debt repayments, but composition is unknown. policy_outlook: Trend Micro historically maintains shareholder returns; however, without DPS and cash balance disclosure in this dataset, we cannot assess policy cadence or sustainability. Monitoring future disclosures for DPS, buybacks, and retained earnings trajectory is essential.

Risk Assessment

Business Risks:

• Competitive intensity in global cybersecurity across endpoint, email, and cloud workload security
• Customer renewal and net retention risk amid vendor consolidation
• Shift to cloud-native architectures requiring ongoing product innovation
• Channel dependency and enterprise sales cycle lengthening in macro slowdowns
• Pricing pressure from platform competitors and bundling by hyperscalers
• Product/technology obsolescence risk and elevated R&D requirements
• Regulatory and data privacy changes affecting product deployment
• FX volatility (USD/JPY and other currencies) impacting reported results

Financial Risks:

• High current liabilities relative to equity, likely driven by deferred revenue, could pressure reported leverage metrics
• Potential FX losses or other non-operating items reducing ordinary income vs operating income
• Concentration of cash outside Japan (not disclosed) could affect capital return flexibility
• Limited disclosed detail on debt composition and cash balances in the period

Key Concerns:

• Flat revenue growth suggests reliance on cost control for earnings expansion
• Lack of disclosure on cash, investing CF, and dividends constrains visibility on capital allocation and FCF
• Non-operating headwinds implied by ordinary income below operating income

Investment Implications

Key Takeaways:

• Strong profitability with operating margin ~22% and EBITDA margin 32.1% despite flat revenue
• ROE at 21.14% supported by high margin, moderate asset turnover, and leverage from liabilities (likely deferred revenue)
• Healthy cash conversion with OCF at 1.28x net income
• Adequate liquidity (current ratio 115%) and positive working capital (¥40.6bn)
• Large financing outflows (¥-131.5bn) indicate active capital allocation, but details are undisclosed
• Ordinary income below operating income points to non-operating headwinds (e.g., FX) to monitor
• Data gaps on cash, investing CF, DPS, and equity ratio limit completeness of analysis

Metrics to Watch:

• Billings and deferred revenue growth as leading indicators of revenue
• ARR and net retention rate
• Cloud workload security and endpoint mix, and pricing/discount trends
• FX impacts on ordinary income and margins
• R&D and S&M intensity (opex ratios) to gauge sustainability of margin expansion
• Cash and equivalents, capex, and detailed FCF
• Capital returns (dividends, buybacks) and changes in financing cash flows

Relative Positioning: Among Japanese software and security peers, Trend Micro maintains a premium margin and strong cash generation profile, with solid ROE supported by a subscription-heavy model; growth in the period is subdued relative to high-growth security vendors, placing greater emphasis on renewals, mix, and operating efficiency.

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