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

SystemSoft (TSE: 7527) reported FY2025 Q4 consolidated results under JGAAP with a sharp top-line contraction and continued losses. Revenue was ¥1,373 million, down 40.6% YoY, indicating severe demand or project timing headwinds in its solutions/IT services mix. Gross profit was ¥526 million, consistent with a 38.3% gross margin, implying cost of sales around ¥847 million despite a higher cost-of-sales figure appearing elsewhere in the dataset. Operating income was a loss of ¥493 million, unchanged YoY, signaling limited cost flexibility against the revenue shock. Ordinary loss improved marginally to ¥463 million relative to operating loss, aided by low financial costs (interest expense ¥6 million). Net loss was ¥258 million (EPS −¥3.04), with an unusual positive income tax line (¥168 million) despite losses, likely reflecting non-recurring or valuation allowance effects. EBITDA was −¥405 million, underscoring negative core earnings power. Operating cash flow was −¥524 million, exceeding the net loss in magnitude, which points to working-capital drag and loss-making operations; however, the OCF/Net Income ratio of 2.03 suggests accruals are not inflating earnings. Free cash flow was −¥111 million, cushioned by positive investing cash flow of ¥413 million, likely asset sales or collection of investment-type receivables. The balance sheet shows sizable current assets (¥4,452 million) versus current liabilities (¥779 million), delivering strong working capital (¥3,673 million) and a high current ratio (572%). Reported total assets were ¥4,869 million and total liabilities ¥893 million, with total equity ¥4,354 million; certain balance-sheet subtotals appear internally inconsistent, so DuPont components (leverage 1.12x) and working-capital metrics are used as anchors. DuPont analysis indicates ROE of −5.93% driven by a −18.79% net margin and low asset turnover of 0.282x, partially mitigated by modest leverage (1.12x). The capital structure appears conservative (Debt-to-Equity 0.21x), and interest burden is low, but earnings coverage is deeply negative (interest coverage −79.1x). No dividend was paid (DPS ¥0), appropriate given negative FCF and losses. Overall, the quarter reflects substantial revenue pressure, persistent operating losses, negative OCF, but ample liquidity from current assets and low leverage. Data limitations exist (e.g., certain zeros reflect non-disclosure; some line-item inconsistencies), so conclusions focus on internally consistent metrics provided.

Profitability Analysis

ROE of −5.93% decomposes into Net Margin −18.79%, Asset Turnover 0.282x, and Financial Leverage 1.12x. The primary driver of weak ROE is the negative net margin, stemming from operating losses (OP margin roughly −35.9% using −¥493m/¥1,373m). Gross margin of 38.3% indicates reasonable pricing/value-add at the gross level, but SG&A intensity and under-absorption drove negative operating leverage. EBITDA margin of −29.5% highlights a structurally loss-making core in the current volume environment. Interest expense is low at ¥6.2m, so profitability is not constrained by financing costs. Ordinary loss (−¥463m) being tighter than operating loss suggests limited non-operating relief. The effective tax presentation is atypical relative to losses, but it does not change the operating picture. Overall, profitability pressure is volume-driven with high fixed cost content, and operating leverage remains negative at current revenue scale.

Growth Assessment

Revenue declined 40.6% YoY to ¥1,373m, indicating significant contraction, likely from project delays, reduced order intake, or a strategic reshaping of the portfolio. The contraction outpaced cost realignment, resulting in flat but large operating losses. The gross margin of 38.3% suggests the revenue that did materialize retained pricing power, providing a base for recovery if volumes return. However, negative EBITDA and OP in tandem with negative OCF indicate current operations are not at breakeven scale. Profit quality is weak: losses persist across operating and net levels, and tax/extraordinary items do not mask underlying trends. Outlook hinges on order backlog recovery, utilization, and SG&A normalization; without evidence of a rebound, near-term growth remains challenged. Any top-line stabilization would likely have outsized impact on margins due to operating leverage.

Financial Health

Liquidity appears strong: current assets ¥4,451.8m vs current liabilities ¥778.8m yields a current ratio of 571.7% and working capital of ¥3,673.1m. The quick ratio equals the current ratio, with inventories undisclosed or negligible. Solvency metrics indicate low leverage, with Debt-to-Equity at 0.21x and DuPont leverage 1.12x, implying a predominantly equity-funded balance sheet. Interest costs are minimal (¥6.2m), and financing CF is modest (−¥117m). Some balance sheet subtotals are internally inconsistent across provided lines; nonetheless, the combination of low leverage and high working capital suggests adequate buffer against ongoing losses. Equity base is sizable (¥4,354m reported), but profitability drag, if prolonged, can erode capital over time.

Cash Flow Quality

Operating cash flow of −¥524m vs net loss of −¥258m yields an OCF/NI of 2.03, indicating cash burn exceeds accounting losses—working capital outflows and non-cash benefits are not flattering earnings. EBITDA of −¥405m aligns with negative OCF directionally, pointing to genuine operating cash strain. Investing CF was +¥413m, likely from asset disposals or returns of deposits, which partially offset operating burn; this is not a recurring source and should be treated cautiously. Free cash flow was −¥111m, better than OCF but reliant on non-operating cash inflows. Working capital: current assets materially exceed current liabilities; however, the period’s OCF indicates WC was a use of cash, possibly due to receivable buildup or reduced payables. Depreciation of ¥88m is modest relative to losses, suggesting limited non-cash cushion.

Dividend Sustainability

DPS was ¥0 with a payout ratio of 0.0%, appropriate given negative net income and negative FCF (−¥111m). Coverage from FCF is not available (0.00x), and initiating distributions under current cash generation would be imprudent. With adequate working capital but ongoing operating losses, capital allocation priority is likely liquidity preservation and reinvestment/turnaround rather than dividends. Future distribution capacity depends on restoring positive OCF and consistent EBITDA breakeven.

Risk Assessment

Business Risks:

• Demand volatility and project timing risk evidenced by −40.6% YoY revenue decline
• Negative operating leverage at current scale leading to outsized profit swings
• Client concentration or segment exposure risk typical for small-mid IT services firms
• Execution risk in cost restructuring and utilization management
• Pricing pressure if recovery relies on discounting to win volumes

Financial Risks:

• Sustained negative OCF (−¥524m) despite modest leverage
• Reliance on non-recurring investing inflows (+¥413m) to soften cash burn
• Potential equity erosion if losses persist
• Limited interest burden now, but refinancing risk could rise if conditions tighten

Key Concerns:

• Depth and duration of revenue contraction
• Path to EBITDA and operating breakeven
• Working capital discipline and receivables collection
• Data inconsistencies across certain balance sheet lines, which constrain precision

Investment Implications

Key Takeaways:

• Severe top-line decline (−40.6% YoY) with persistent operating losses (OP −¥493m)
• Gross margin resilient at 38.3%, but SG&A/fixed costs too high for current scale
• Negative OCF (−¥524m) and negative FCF (−¥111m) despite supportive investing CF
• Strong liquidity buffer (current ratio ~5.7x; working capital ~¥3.7bn) and low leverage (D/E 0.21x)
• ROE −5.93% driven by −18.79% NPM and low asset turnover (0.282x)
• No dividend, appropriately conserving cash amid losses

Metrics to Watch:

• Quarterly order intake/backlog and revenue run-rate
• EBITDA margin trajectory toward breakeven
• Operating cash flow and working capital turns (DSO/DPO)
• SG&A reduction versus growth recovery (operating leverage inflection)
• Cash and liquid assets bridge, given reliance on investing inflows
• Asset turnover improvement from 0.282x

Relative Positioning: Versus domestic small-cap IT services/software peers, SystemSoft shows weaker recent growth and profitability but comparatively strong liquidity and low leverage; recovery depends on order rebound and cost discipline to unlock operating leverage.

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