SystemSoft Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥1.37B
• Operating Income: ¥-493M
• Net Income: ¥-268M
• EPS: ¥-3.04

Income Statement

Balance Sheet

Cash Flow Statement

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: FY2025 Q4 was weak, marked by a sharp top-line contraction and deep operating losses despite an ample cash position. Revenue fell 40.6% YoY to 13.73, while gross profit was 3.66, yielding a 26.7% gross margin that could not cover SG&A of 8.60. Operating income deteriorated to -4.93, translating to an operating margin of roughly -35.9%. Ordinary income was -4.63, with limited non-operating income (0.55) and expenses (0.25) providing only minor offsets. Net income came in at -2.58 (EPS -3.04 JPY), and total comprehensive income was -2.81. Cost deleverage is evident: gross profit was only 43% of SG&A, underscoring insufficient scale and pricing to cover the fixed cost base. The reported operating margin in XBRL (-0.4%) appears inconsistent with the arithmetic from disclosed figures; based on provided income statement data, the operating margin is approximately -35.9%, suggesting significant margin compression (bps change not quantifiable due to lack of prior-period margin disclosure). Cash flow from operations was -5.24, worse than the net loss, indicating cash burn and working capital or collection pressures. However, cash and deposits are a strong 32.43 against current liabilities of 4.53, giving a very high current ratio of 975.6% and substantial liquidity runway. Investing cash flow was +4.13, implying reliance on asset sales or disposals to partially fund operations; capital expenditures were modest at -0.09. The balance sheet is conservatively leveraged (D/E 0.12x; long-term loans 0.01), but retained earnings are negative (-11.74), indicating accumulated deficits and potential constraints on dividends under Japanese corporate law without capital surplus reclassification. ROE is -5.9% via DuPont (net margin -18.8%, asset turnover 0.282, leverage 1.12x), pointing to profitability as the primary drag, not leverage. Interest coverage is negative given operating losses, but absolute interest burden is small due to minimal debt. Effective tax rate is distorted (-26.5%) as losses coexisted with tax expense, likely due to non-deductible items and valuation allowance dynamics. Forward-looking, profitability recovery will hinge on stabilizing revenue, improving utilization and pricing, and resizing SG&A to match a smaller revenue base; liquidity buys time, but sustained cash burn risks eroding equity if losses persist.

Profitability Analysis

ROE decomposition: ROE (-5.9%) = Net Profit Margin (-18.8%) × Asset Turnover (0.282) × Financial Leverage (1.12x). The largest adverse change driver is the net profit margin, given the deep operating loss (-4.93) on a reduced revenue base (13.73). Business reason: a 40.6% YoY revenue decline led to severe operating deleverage—gross profit (3.66) could not cover SG&A (8.60), pushing operating margin to about -35.9%. Non-operating items (net +0.30) were insufficient to offset core weakness, and tax expense despite losses further weighed on net margin. Asset turnover at 0.282 reflects modest efficiency consistent with a cash-heavy balance sheet (cash 32.43), dampening turnover. Leverage at 1.12x is low, so leverage neither helped nor hurt materially. Sustainability assessment: the negative margin reflects operating scale issues rather than one-time factors; without cost restructuring or demand recovery, profitability pressure is likely to persist. Concerning trends: SG&A level relative to gross profit is unsustainably high; while we lack YoY SG&A detail, the current gap (gross profit 3.66 vs SG&A 8.60) indicates a structurally heavy cost base versus sales.

Growth Assessment

Revenue declined 40.6% YoY to 13.73, signaling demand softness or project delays/cancellations. Profitability deterioration is volume-driven: gross margin of 26.7% suggests pricing/mix is not the primary issue; the core problem is insufficient scale to absorb fixed SG&A. Non-operating income (0.55) offers limited cushion and is not a reliable growth driver. Ordinary income at -4.63 confirms weakness beyond one-time items. Future growth sustainability depends on rebuilding backlog/pipeline, improving utilization, and potentially pruning unprofitable lines. With goodwill (1.75) and intangibles (1.78), segment performance matters for impairment risk if earnings do not recover. Near-term outlook: cost actions and focus on higher-margin projects are needed; otherwise, continued cash burn is likely even with ample liquidity. Absent disclosure on R&D and segment drivers, visibility into growth catalysts is limited.

Financial Health

Liquidity is very strong: current ratio 975.6% (current assets 44.18 vs current liabilities 4.53) and quick ratio equivalent due to cash dominance. No warning on current ratio (<1.0)—well above threshold. Solvency is conservative with D/E 0.12x, long-term loans of 0.01, and minimal interest expense (0.01). Maturity mismatch risk is low: cash and deposits (32.43) far exceed current liabilities (4.53). Total equity is 43.54, supported by large capital and capital surplus; however, retained earnings are negative (-11.74), indicating accumulated losses. No off-balance sheet obligations were disclosed in the provided data. The balance sheet can absorb near-term losses, but continued deficits will erode equity over time.

Cash Flow Quality

OCF/Net Income is 2.03x per provided metric, but both OCF (-5.24) and NI (-2.58) are negative; operational cash burn exceeds the accounting loss, which is a quality concern despite the ratio reading above 1.0. Free cash flow is -1.11 (provided), though OCF and capex alone imply deeper negative FCF; the gap is explained by positive investing cash flow (+4.13), likely from asset disposals or securities liquidation, which is non-recurring. Earnings quality is thus weak: cash conversion is negative and reliant on asset sales to fund operations. Working capital signals: accounts receivable are 6.25 vs payables 2.03; without detailed movement data, we cannot pinpoint collection delays or payables management, but negative OCF suggests either weaker collections or advance cost recognition. Sustainability: capex is low (-0.09), but absent a rebound in OCF, FCF will remain pressured, constraining optionality despite cash on hand.

Dividend Sustainability

Dividend data were unreported. With net loss (-2.58) and negative FCF (-1.11), organic dividend capacity is weak in the period. Retained earnings are negative (-11.74), which may restrict dividend payments under the Companies Act unless capital surplus is reclassified to distributable amounts. Liquidity is ample (cash 32.43), but funding dividends from balance sheet while loss-making is not sustainable. Policy outlook cannot be inferred without disclosure; near-term, preserving cash to stabilize the core business is prudent.

Risk Assessment

Business Risks:

• Demand volatility leading to 40.6% YoY revenue decline
• Operating deleverage from fixed SG&A base exceeding gross profit
• Potential impairment risk on goodwill (1.75) and intangibles (1.78) if recovery lags
• Execution risk in project delivery and utilization management
• Talent retention and wage inflation pressure in IT/services

Financial Risks:

• Sustained operating losses driving negative OCF (-5.24)
• Equity erosion risk given negative retained earnings (-11.74)
• Reliance on asset sales (Investing CF +4.13) to offset operating cash burn
• Negative interest coverage due to operating losses, albeit with low absolute debt

Key Concerns:

• Core profitability: operating margin about -35.9% with gross profit insufficient to cover SG&A
• Cash burn vs liquidity: strong cash today (32.43) but continued OCF deficits would deplete reserves
• Tax expense despite losses (effective tax rate -26.5%) weighs on bottom line
• Limited disclosure on SG&A composition, R&D, and segment drivers reduces visibility

Investment Implications

Key Takeaways:

• Severe revenue contraction (-40.6% YoY) and deep operating loss (-4.93)
• Gross margin 26.7% but inadequate to cover SG&A (8.60), highlighting scale and cost issues
• Liquidity very strong (current ratio ~9.8x; cash 32.43), leverage low (D/E 0.12x)
• Negative OCF (-5.24) and reliance on disposals (Investing CF +4.13) are unsustainable
• ROE -5.9% driven by net margin; asset turnover and leverage play minor roles
• Negative retained earnings (-11.74) constrain dividend flexibility

Metrics to Watch:

• Order backlog, bookings, and revenue trajectory
• Operating margin and SG&A as % of revenue
• OCF trend and receivables collection (AR 6.25 vs AP 2.03)
• Use of investment securities (2.56) and proceeds from asset sales
• Impairment testing outcomes for goodwill/intangibles
• Headcount and utilization rates (if disclosed)

Relative Positioning: Versus domestic small-cap IT/services peers, the company exhibits weaker profitability and cash generation but materially stronger liquidity and lower leverage; recovery depends on restoring scale and right-sizing costs.

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