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

Arent (5254) delivered FY2026 Q1 revenue of ¥982 million, up a strong 28.9% YoY, indicating robust topline momentum despite a challenging cost backdrop. Operating income of ¥161 million fell 55.5% YoY, implying significant YoY expansion in SG&A or growth investments that compressed operating leverage in the quarter. Net income came in at ¥82 million, down 61.5% YoY, with a reported net margin of 8.35%, highlighting profitability pressure despite healthy sales expansion. Gross profit is disclosed at ¥492 million, corresponding to a gross margin of 50.1%; this is consistent with the provided margin metric but does not reconcile with the stated cost of sales, suggesting classification or disclosure timing differences. Ordinary income of ¥167 million marginally exceeded operating income, supported by minimal interest expense (¥1.0 million) and no material non-operating burdens. The DuPont framework shows a reported ROE of 1.53%, driven by an 8.35% net margin, asset turnover of 0.146, and low financial leverage of 1.25x, implying an equity ratio around 80% and a balance-sheet-heavy equity base. Liquidity is a key strength: current ratio stands at 390.6% and working capital at ¥3.396 billion, providing ample short-term flexibility. Solvency is strong with total liabilities of ¥1.283 billion against equity of ¥5.35 billion (debt-to-equity ~0.24x), indicating conservative leverage. Interest coverage is very high at 160.7x on operating income, suggesting limited financial risk from borrowing costs. Reported cash flow figures are unprovided (zeros indicate not disclosed), limiting assessment of earnings-to-cash conversion and free cash flow sustainability this quarter. EPS is ¥12.66; implied weighted average shares cannot be confirmed due to unreported share count, but EPS aligns with the net income figure for a small-cap issuer. The decline in operating income despite strong revenue growth suggests a step-up in growth investments, cost inflation, or project mix effects; tracking SG&A intensity and gross margin trajectory will be critical. Tax expense of ¥87.53 million against pretax income near ¥167 million implies an effective tax rate of roughly 52%, despite a displayed 0.0%, underscoring limitations in the auto-calculated metrics. Overall, the quarter shows resilient demand and strong balance sheet quality, offset by margin compression and limited cash flow visibility. The equity-heavy structure provides a buffer for continued investment, but profitability normalization depends on cost discipline and operating leverage recovery as growth scales. With no dividend declared, capital allocation appears focused on reinvestment. Data constraints—particularly cash flow and certain per-share metrics—necessitate caution in interpreting cash conversion and payout capacity. The outlook hinges on sustaining revenue growth while stabilizing margins, with a near-term focus on SG&A productivity and project execution.

Profitability Analysis

ROE_decomposition: Reported ROE is 1.53%, decomposed as Net Margin 8.35% × Asset Turnover 0.146 × Financial Leverage 1.25. Low leverage constrains ROE despite positive margins; asset intensity and modest turnover weigh on capital efficiency. margin_quality: Gross margin is shown at 50.1% (gross profit ¥492 million on revenue ¥982 million). Operating margin is approximately 16.4% (¥161 million/¥982 million), down sharply YoY given operating income -55.5% on +28.9% revenue. Net margin at 8.35% reflects both margin compression and a relatively high indicated tax burden. operating_leverage: Negative operating leverage in the quarter: revenue +28.9% YoY vs operating income -55.5% YoY implies a significant YoY increase in operating costs (likely SG&A and/or labor). Monitoring the SG&A-to-sales ratio and headcount/productivity will be important to gauge normalization potential.

Growth Assessment

revenue_sustainability: Topline growth of +28.9% YoY suggests healthy demand and/or expansion of project scope. Sustainability will depend on backlog conversion, customer retention, and mix of recurring vs project-based revenue. profit_quality: Despite solid growth, profit contraction indicates near-term pressure from cost scaling or mix. Ordinary income slightly above operating income suggests limited reliance on non-operating gains; core profitability remains the key driver. outlook: Near-term outlook hinges on converting growth to margins as investments mature. If SG&A growth moderates and utilization improves, operating leverage can recover; otherwise, margins may remain constrained even with continued revenue growth.

Financial Health

liquidity: Current assets ¥4,564 million vs current liabilities ¥1,169 million yields a current ratio of 390.6% and ample working capital of ¥3,396 million. Quick ratio equals current ratio given no inventories reported. solvency: Total liabilities ¥1,283 million vs equity ¥5,350 million implies a conservative capital structure (debt-to-equity ~0.24x). Interest coverage is 160.7x, indicating minimal interest burden. capital_structure: Financial leverage of 1.25x implies an equity ratio around 80%, consistent with assets ¥6,712 million and equity ¥5,350 million (≈79.7%). Balance sheet strength provides capacity to invest without near-term refinancing risk.

Cash Flow Quality

earnings_quality: Operating, investing, and financing cash flows are not disclosed this quarter (zeros indicate unreported), preventing assessment of cash conversion. As such, OCF/NI and FCF metrics cannot be interpreted. FCF_analysis: Free cash flow is unreported. With net income at ¥82 million and strong working capital, FCF could be sensitive to receivables and contract asset movements typical for project-based models; data unavailable to confirm. working_capital: Working capital of ¥3,396 million is robust; however, lack of detail on receivables/payables days and contract assets limits analysis of cash cycle efficiency.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is ¥0.00 and payout ratio is 0.0%, indicating retention of earnings. Given weaker operating profit YoY, a conservative payout stance is consistent with reinvestment priorities. FCF_coverage: FCF coverage cannot be evaluated due to unreported cash flows; any assessment of dividend affordability would be speculative this quarter. policy_outlook: With a strong equity base and growth investments underway, policy likely prioritizes reinvestment over distributions in the near term, pending clearer visibility on margin recovery and cash generation.

Risk Assessment

Business Risks:

• Margin pressure from rising personnel costs and SG&A scaling ahead of revenue
• Project mix and execution risk affecting gross margin and delivery timelines
• Potential client concentration inherent in specialized solution/project businesses
• Competitive intensity in digital engineering/IT services impacting pricing
• Recruitment and retention risk for high-skill engineers impacting utilization

Financial Risks:

• Limited visibility on cash conversion due to unreported cash flows
• Working capital swings from receivables/contract assets potentially impacting OCF
• High indicated effective tax rate (~52%) dampening net profitability
• Low leverage reduces risk but constrains ROE absent higher asset turnover

Key Concerns:

• Operating income down 55.5% YoY despite +28.9% revenue growth
• Gross margin disclosure (50.1%) does not reconcile with the stated cost of sales, suggesting classification/timing differences
• Cash flow data absent, limiting assessment of earnings quality and FCF
• ROE at 1.53% reflects low capital efficiency given asset base

Investment Implications

Key Takeaways:

• Strong topline growth (+28.9% YoY) but significant operating margin compression
• Conservative balance sheet with high liquidity and low leverage
• Interest burden negligible; financing risk low
• Reported ROE modest at 1.53% due to low leverage and modest asset turnover
• Cash flow visibility is limited this quarter; monitoring OCF is crucial

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• Gross margin trend and project mix
• Order backlog/ARR and client concentration
• Receivables days/contract assets and OCF conversion once disclosed
• Headcount, utilization, and hiring pace
• Effective tax rate normalization

Relative Positioning: Within Japan small-cap software/engineering services peers, Arent shows above-average revenue growth and strong balance sheet quality, but currently weaker operating leverage and ROE, with limited cash flow disclosure constraining earnings quality assessments.

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