ZETA INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.25B
• Operating Income: ¥155M
• Net Income: ¥78M
• EPS: ¥3.77

Income Statement

Balance Sheet

Profitability Ratios

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 topline-to-operating profit conversion with high gross margin, but equity base remains thin and leverage elevated; cash liquidity is ample while cash flow disclosure is absent. Revenue was 12.45, generating gross profit of 9.85 and operating income of 1.55. Gross margin stood at 79.1%, while operating margin was 12.4% and net margin 6.2%. Ordinary income was 1.39 and profit before tax 1.28, with net income at 0.77 and an effective tax rate of 39.4%. SG&A of 8.30 consumed roughly two-thirds of revenue (66.7%), leaving modest operating leverage. Interest expense was 0.13, and interest coverage was a comfortable 12.30x. Balance sheet shows total assets of 30.54 against total equity of 8.27, implying financial leverage of 3.69x and a Debt/Equity ratio of 2.69x (warning threshold >2.0). Liquidity is strong with current assets of 21.74 vs current liabilities of 8.23 (current ratio 264.1%). Cash and deposits of 18.06 exceed reported long-term loans of 9.66, indicating substantial liquidity flexibility despite headline leverage. ROE calculated via DuPont is 9.3%, driven more by leverage and healthy gross margin than by asset turnover (0.408). Earnings quality cannot be judged due to unreported operating cash flow and capex. Dividend disclosure is missing, but a calculated payout ratio of 133.9% suggests potential pressure if accurate; however, confidence is low given missing dividend data. Margin trend analysis in basis points cannot be performed due to lack of prior-period comparatives. Forward-looking, operating leverage could support margin expansion if revenue scales, but high SG&A intensity and an elevated tax rate cap near-term net margin. Key risks include balance-sheet leverage, potential interest-rate sensitivity, and the absence of cash flow transparency.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (6.2%) × Asset Turnover (0.408) × Financial Leverage (3.69x) = ROE 9.3%. Among the three components, financial leverage (3.69x) is the most pronounced driver of ROE given modest asset turnover and mid-single-digit net margin. Business reason: the company operates with a high gross margin model (likely software/IT services characteristics) but carries relatively low equity (total equity 8.27 vs assets 30.54) and notable long-term loans (9.66), boosting leverage. Sustainability: leverage-driven ROE is less durable than margin/turnover-driven ROE; it heightens downside risk if earnings soften or interest rates rise. Net margin is constrained by high SG&A (8.30; 66.7% of revenue) and a high effective tax rate (39.4%); operating margin at 12.4% leaves room for improvement via cost discipline and scale benefits. Asset turnover at 0.408 is low to moderate, consistent with an intangible-heavy model (intangibles 4.65) and large cash balance. Concerning trends: SG&A intensity is high relative to revenue, which could outpace revenue growth if not managed, compressing operating margin. Note: Without prior-period figures, we cannot quantify which component changed the most versus last year.

Growth Assessment

Revenue scale is modest at 12.45 with strong gross profitability (79.1%), indicating a potentially recurring, high-margin model, but SG&A intensity (66.7% of sales) limits operating leverage at current scale. Profit quality appears acceptable at the operating level (OI 1.55; 12.4% margin) and ordinary level (1.39; 11.2% margin), but the high tax rate depresses net profit to 0.77 (6.2% margin). Non-operating items are small (non-operating income 0.03; expenses 0.18), suggesting core operations drive performance. Outlook hinges on scaling revenue to dilute SG&A and on normalizing the effective tax rate; either could lift net margin. Absent YoY comparisons or segment data, the sustainability of growth cannot be judged; monitoring new bookings, churn/retention, and upsell (if applicable) will be key.

Financial Health

Liquidity is strong: current assets 21.74 vs current liabilities 8.23 yields a current ratio of 264.1% and quick ratio of 264.1%. Solvency shows caution: Debt-to-Equity is 2.69x (warning >2.0). Financial leverage (assets/equity) is 3.69x, reflecting a thin equity cushion (8.27). Maturity mismatch risk appears limited: cash 18.06 comfortably covers current liabilities (8.23) and exceeds reported long-term loans (9.66), although total interest-bearing debt is not fully disclosed. Interest coverage is robust at 12.30x, mitigating near-term debt service risk. Off-balance sheet obligations are not reported; none can be assessed from available data.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex are unreported; thus OCF/Net Income, FCF, and FCF coverage cannot be assessed. Earnings quality flags: unable to test OCF/NI < 0.8 threshold due to missing data. Working capital appears light and service-like (AR 1.69; AP 0.36; no inventories reported), with significant cash (18.06), which supports liquidity but does not substitute for recurring cash generation evidence. No signs of working capital manipulation can be inferred from available data, but the absence of cash flow statements is a limitation.

Dividend Sustainability

Dividend data are unreported; total dividends and DPS are N/A. A calculated payout ratio of 133.9% (methodology not disclosed) implies potential unsustainability if accurate, given net income of 0.77; however, confidence is low due to missing dividend inputs. Without OCF/FCF disclosure, coverage of dividends and capex cannot be evaluated. Policy outlook cannot be inferred from the data; monitor guidance, payout policy, and buyback intentions in subsequent disclosures.

Risk Assessment

Business Risks:

• High SG&A intensity (66.7% of revenue) could limit operating leverage if revenue growth slows.
• Potential pricing pressure and competitive dynamics typical of high-margin digital/IT models.
• Execution risk in scaling sales while maintaining gross margin near 80%.
• Intangible asset base (4.65) introduces potential impairment risk if growth underperforms.

Financial Risks:

• Elevated leverage: D/E 2.69x and financial leverage 3.69x.
• Interest rate risk on 9.66 of long-term loans; rising rates could pressure interest coverage.
• Thin equity base (8.27) amplifies earnings volatility and downside risk.
• Tax burden risk: high effective tax rate (39.4%) depresses net margins.

Key Concerns:

• Lack of cash flow disclosure (OCF/FCF) limits assessment of earnings quality and dividend capacity.
• Potentially high payout ratio (133.9%) if accurate, which would be unsustainable without strong FCF.
• Dependence on SG&A-driven growth; if sales productivity lags, margins could compress.
• Data limitations around total interest-bearing debt (short-term loans not disclosed) could understate leverage.

Investment Implications

Key Takeaways:

• High gross margin (79.1%) supports value creation potential if scale is achieved.
• Operating margin is modest (12.4%) due to heavy SG&A, leaving room for operating leverage.
• ROE of 9.3% is acceptable but leverage-driven; improving margin/turnover mix would enhance quality.
• Liquidity strong (current ratio 264%) with cash 18.06 exceeding reported long-term loans 9.66.
• Headline leverage elevated (D/E 2.69x); balance-sheet resilience depends on cash retention and earnings stability.
• Cash flow opacity and dividend uncertainty are key overhangs.

Metrics to Watch:

• Operating cash flow and free cash flow trends (when disclosed).
• SG&A growth versus revenue growth (operating leverage).
• Effective tax rate trajectory and any structural tax planning.
• Debt maturity profile, interest rate mix (fixed/floating), and total interest-bearing debt disclosure.
• AR days and collection efficiency, given service-like receivables profile.
• Any dividend policy updates relative to earnings and FCF.

Relative Positioning: Versus small-cap Japanese high-margin digital/IT peers, ZETA shows attractive gross margins and adequate ROE but higher financial leverage and weaker disclosure on cash flows; liquidity is a relative strength, while SG&A intensity and tax rate constrain bottom-line competitiveness.

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