Arent Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥982M
• Operating Income: ¥161M
• Net Income: ¥214M
• EPS: ¥12.66

Income Statement

Balance Sheet

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

Verdict: Mixed quarter—top-line growth was strong, but profitability compressed materially and bottom-line relied on non-recurring gains to bridge from ordinary income to pretax. Revenue rose 28.9% YoY to 9.82, while operating income fell 55.5% YoY to 1.61, implying weaker operating leverage despite scale. Gross profit was 4.92 with a gross margin of 50.1%, indicating healthy unit economics at the gross level. Operating margin declined to 16.4% (1.61/9.82), down sharply from an implied c.47.5% a year ago, suggesting a c.3,110 bps compression YoY. Ordinary income printed at 1.67, but profit before tax jumped to 3.02, implying substantial extraordinary gains (c.1.35) not detailed in the disclosure. Net income was 0.82 (-61.5% YoY), with an effective tax rate of 29.0%. DuPont shows NPM of 8.3%, asset turnover of 0.146, and financial leverage of 1.25x, generating a calculated ROE of 1.5% for the quarter—muted given the top-line momentum. Liquidity is very strong: current ratio 402%, quick ratio 402%, cash and deposits 36.29 vs current liabilities 11.57. Leverage remains conservative with D/E at 0.25x and interest coverage at ~161x. Balance sheet quality is mixed: goodwill (11.65) and intangible assets (16.95) total c.38.6% of assets, adding future impairment risk should growth underperform. Operating cash flow was not disclosed, limiting earnings quality assessment and FCF visibility. Reported ROIC is 5.9%, below typical 7–8% target ranges for value creation, indicating room for improvement in capital efficiency. Earnings quality is hard to validate this quarter given the gap between ordinary income and pretax driven by non-recurring gains and the absence of cash flow data. Forward-looking, sustaining growth while stabilizing operating margin will be critical, alongside converting earnings to cash. Monitoring AR relative to quarterly sales (8.35 vs 9.82) and any normalization of extraordinary items is key to assessing core profitability trajectory.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 8.3% × 0.146 × 1.25 ≈ 1.5%. The largest change versus last year is the net profit margin, given the steep decline in operating income despite revenue growth and the reliance on extraordinary gains to lift pretax. Business driver: operating margin contracted to 16.4% from an implied ~47.5% last year, likely due to higher cost intensity (e.g., delivery costs, subcontracting, or growth investments in SG&A) and possibly mix shifts; ordinary-to-pretax gap suggests one-off gains inflated pretax/NI metrics. Sustainability: margin compression at the operating level is a concern if driven by recurring cost base increases; extraordinary gains are by definition non-recurring, so NI supported by such items is not sustainable. Concerning trends: SG&A was 1.30 (13.2% of sales); without YoY SG&A data, we cannot confirm SG&A growth > revenue growth, but the operating deleverage implies opex expansion outpaced gross profit growth. Additional note: the reported cost of sales figure (2.70) conflicts with revenue and gross profit; gross margin (50.1%) aligns with revenue and gross profit, so we anchor on those for margin analysis.

Growth Assessment

Revenue growth of +28.9% YoY to 9.82 demonstrates solid demand momentum. However, operating income declined 55.5% YoY to 1.61, indicating negative operating leverage in the quarter. Gross margin at 50.1% is healthy, suggesting pricing and direct cost control remain reasonable, but higher opex or mix looks to have compressed operating margin. Ordinary income at 1.67 versus pretax at 3.02 points to sizable non-recurring gains; underlying core growth therefore trails headline pretax/NI. With AR at 8.35 (≈85% of quarterly sales), cash conversion and billing/collection cadence warrant monitoring, though seasonality may play a role. ROIC at 5.9% is below the 7–8% value creation benchmark, implying growth is not yet translating to sufficient capital efficiency. Outlook hinges on restoring operating margin and converting revenue growth into recurring operating profit and cash. Near-term catalysts include normalization of extraordinary items and tighter cost discipline; risks include continued opex investment pressure and potential client budget timing. Absent cash flow disclosure, sustainability of growth investments and self-funding capacity remains uncertain.

Financial Health

Liquidity is strong with a current ratio of 402% and quick ratio of 402%; no warning triggers (both >1.0). Capital structure is conservative: D/E 0.25x, interest-bearing debt is modest (short-term loans 1.27, long-term loans 0.82) versus cash of 36.29. No explicit maturity mismatch risk: current assets 46.52 comfortably exceed current liabilities 11.57; cash alone covers current liabilities 3.1x. Equity stands at 53.50 against total assets of 67.12, implying leverage ~1.25x. Intangibles are material (goodwill 11.65; intangibles 16.95), totaling ~38.6% of assets—this raises potential impairment risk if growth underperforms. No off-balance sheet obligations were disclosed. No solvency warnings (D/E well below 2.0). Working capital is ample at 34.95.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income and FCF cannot be assessed; this is a key limitation. Given AR of 8.35 relative to quarterly revenue of 9.82, monitoring collection speed is important to validate earnings-to-cash conversion. With cash at 36.29 and low debt, near-term liquidity for operations and investment is sufficient even without OCF data. No explicit signs of working capital manipulation can be identified due to missing cash flow statements and detailed WC breakdown. Until OCF is reported, we cannot confirm whether earnings quality meets the >1.0 OCF/NI benchmark.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) were not disclosed. With NI at 0.82 for the quarter, payout sustainability cannot be calculated. Balance sheet strength (net cash position) would support modest shareholder returns, but the absence of OCF/FCF data and the presence of non-recurring gains this quarter argues for caution in inferring sustainable payout capacity. If a policy exists (e.g., payout ratio or DOE), it was not reported; monitor full-year guidance and cash flow to assess distribution capacity.

Risk Assessment

Business Risks:

• Operating margin compression despite strong revenue growth, indicating negative operating leverage risk
• Dependence on non-recurring/extraordinary gains to bridge ordinary income to pretax in the quarter
• High proportion of intangible assets (goodwill and other intangibles) elevating impairment risk if growth stalls
• Client budget timing and project delivery risks that can affect quarterly revenue recognition and margins
• Potential pricing pressure or cost inflation (personnel, subcontracting) impacting margins

Financial Risks:

• Earnings-to-cash conversion risk due to absence of OCF disclosure and AR level (~85% of quarterly revenue)
• Capital efficiency below benchmark (ROIC 5.9%), risking value dilution if investment outpaces returns
• Small scale and volatility in profitability could increase sensitivity to demand shocks

Key Concerns:

• Data inconsistencies between cost of sales, gross profit, ordinary income, and profit before tax, obscuring true run-rate profitability
• Non-recurring gains inflated pretax results, reducing visibility into recurring earnings power
• Lack of cash flow statement limits assessment of earnings quality and FCF coverage for any dividends or capex

Investment Implications

Key Takeaways:

• Strong top-line (+28.9% YoY) but significant operating margin compression to 16.4%
• Ordinary-to-pretax jump implies material extraordinary gains; underlying core profitability is lower than headline pretax
• ROE at 1.5% and ROIC at 5.9% suggest modest capital efficiency this quarter
• Balance sheet is robust with net cash and >400% current ratio
• Earnings quality and cash conversion cannot be validated due to missing OCF/FCF

Metrics to Watch:

• Operating margin trajectory and SG&A intensity (SG&A as % of sales at 13.2%)
• Disclosure of extraordinary gains and their recurrence/non-recurrence
• OCF/Net income and working capital (AR days) once cash flow is reported
• ROIC progression versus 7–8% benchmark
• Gross margin stability around ~50%

Relative Positioning: Versus domestic growth peers, the company shows strong liquidity and a conservative balance sheet but weaker profit convertibility and capital efficiency this quarter, with elevated reliance on non-recurring gains and limited cash flow 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