f-code Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥8.40B
• Operating Income: ¥1.81B
• Net Income: ¥1.09B
• EPS: ¥84.53

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: Strong top-line and bottom-line growth in FY2025 Q3, but leverage is high and earnings quality can’t be verified due to missing cash flow disclosures. Revenue reached 84.02, up 173.0% YoY, indicating very strong expansion likely driven by inorganic growth given the sizable goodwill balance (136.32). Operating income was 18.11 (+91.5% YoY), producing a current operating margin of about 21.5%. Net income came in at 10.35 (+89.3% YoY), yielding a net margin of 12.3%. Profit before tax was 16.80, implying net non-operating expense of roughly 1.31 relative to operating income. The effective tax rate was 18.4%, slightly below Japan’s headline level, supporting net income growth. ROE was 16.3% (DuPont: 12.3% margin × 0.293 asset turnover × 4.51x leverage), indicating solid return but supported by high financial leverage. Equity ratio is 24.9% and D/E is 3.51x, which is elevated and warrants caution amid potential refinancing or covenant risk. Cash and equivalents of 78.67 provide a liquidity buffer, but the current ratio is unreported, so short-term coverage can’t be confirmed. Gross profit and operating income disclosures show internal inconsistencies with reported cost of sales, so we rely on the reported operating income and net income for margin analysis. Given revenue growth outpacing operating income growth, operating margin likely compressed YoY, though basis-point quantification is not possible with the provided data. Earnings quality is indeterminate because operating cash flow is unreported; OCF/NI cannot be assessed. Goodwill is 136.32 (> total equity of 63.57), elevating impairment risk that could materially impact future earnings and equity. Forward-looking, sustaining 16%+ ROE will require maintaining a double-digit net margin while improving asset turnover and deleveraging; cash generation and integration discipline are key. In sum, the quarter shows impressive growth and profitability, but leverage, goodwill concentration, and missing cash flow data temper the quality assessment. Absent dividend data, capital allocation priorities remain unclear. Near-term focus should be on OCF traction, working capital discipline, and visibility into the liability structure.

Profitability Analysis

ROE decomposition: 16.3% = Net Profit Margin (12.3%) × Asset Turnover (0.293) × Financial Leverage (4.51x). The largest contributor to ROE is leverage at 4.51x, followed by a healthy net margin of 12.3%; asset turnover at 0.293 is modest, consistent with a business model with sizable intangibles. Relative change drivers: revenue grew +173% YoY, while operating income grew +91.5% YoY and net income +89.3% YoY; this suggests margin was the component that weakened (compression) rather than asset turnover (which likely improved with scale) or leverage (which remains high). Business reason: strong top-line likely reflects acquisitions and/or scaling of higher-growth services, but integration costs, mix shifts, or higher variable costs likely capped operating leverage, resulting in slower OP growth vs revenue. Sustainability: the current net margin (12.3%) is decent; however, the extent to which it can be sustained depends on mix (recurring vs project-based revenue), cost discipline, and avoidance of one-off integration expenses. Concerns: SG&A growth vs revenue cannot be evaluated due to lack of YoY SG&A detail, but absolute SG&A of 10.01 relative to revenue indicates reasonable cost control this quarter. The gap between operating income (18.11) and PBT (16.80) points to non-operating drag; if interest expense is a key component, further margin pressure could persist with higher rates. Overall, ROE quality depends on reducing leverage and maintaining net margin amidst growth.

Growth Assessment

Revenue growth (+173.0% YoY to 84.02) is exceptional and likely includes inorganic contributions given goodwill of 136.32. Operating income grew +91.5% YoY to 18.11, below revenue growth, suggesting lower operating leverage this period. Net income grew +89.3% YoY to 10.35 with an effective tax rate of 18.4%, supporting bottom-line expansion. Current operating margin is ~21.5% and net margin is 12.3%; directionally, margins likely compressed YoY as profit growth trailed revenue growth. Profit quality cannot be verified due to unreported OCF; we cannot confirm cash conversion or working capital effects. Outlook hinges on: integration execution to unlock synergies, maintaining pricing power, and scaling without elevating customer acquisition costs. Given elevated leverage, growth should ideally prioritize cash-generative lines to support de-risking. Mix clarity (recurring vs non-recurring) would be key to assessing sustainability.

Financial Health

Liquidity: Current assets are 115.07, but current liabilities are unreported; current ratio and quick ratio are not calculable. Cash & equivalents of 78.67 provide a sizable buffer, but liquidity adequacy vs short-term obligations cannot be confirmed. Solvency: Equity ratio is 24.9% and D/E is 3.51x (warning: >2.0). Total liabilities are 222.94 vs total assets 286.51, implying high leverage; composition of interest-bearing debt vs contract liabilities is unknown. Maturity mismatch: Without current vs noncurrent liability breakdown or debt maturities, short-term refinancing risk can’t be assessed. Asset quality: Goodwill is 136.32, exceeding total equity (63.57), indicating high impairment risk if acquired businesses underperform. Off-balance sheet: None reported; no information on guarantees or leases, so contingent risks may be understated. Warning flag: D/E > 2.0 indicates elevated financial risk.

Cash Flow Quality

OCF and FCF are unreported; OCF/Net Income and free cash flow coverage cannot be calculated. As a result, earnings quality is indeterminate. Key diagnostic gaps: no visibility into working capital movements (AR, deferred revenue, payables), no capex data, and no interest paid disclosure. Potential working capital risks include AR growth (AR is 24.46) relative to revenue, but without aging/turnover data we cannot infer collection risk. With PBT below operating income, non-operating costs (possibly interest) are a drag; without OCF, cash interest coverage cannot be verified. Near-term, high cash balance (78.67) cushions liquidity, but sustainability of cash generation remains unverified.

Dividend Sustainability

Dividend data are unreported; payout ratio and FCF coverage are not calculable. Given elevated leverage (D/E 3.51x) and significant goodwill exposure, prudent capital allocation would prioritize reinvestment and balance sheet resilience over distributions until sustainable OCF is demonstrated. Without dividend history or policy disclosure, outlook on DPS is unclear.

Risk Assessment

Business Risks:

• Integration and execution risk from acquisitions implied by high goodwill (136.32).
• Margin pressure risk as operating income growth trails revenue growth, indicating potential cost inflation or adverse mix.
• Customer concentration or churn risk typical in digital/IT services and marketing tech sectors (actual concentration unreported).
• Competitive intensity risk potentially compressing pricing and increasing customer acquisition costs.

Financial Risks:

• High leverage (D/E 3.51x) raises refinancing and covenant risks.
• Goodwill impairment risk exceeding total equity; a write-down would impact equity and future ROE.
• Interest rate risk if debt is floating; non-operating expense drag already evident (OP 18.11 vs PBT 16.80).
• Liquidity assessment limited due to unreported current liabilities; potential maturity mismatch cannot be ruled out.

Key Concerns:

• Cash flow opacity: OCF, capex, and FCF unreported; earnings quality cannot be validated.
• Inconsistent gross profit vs cost of sales figures, which complicates margin interpretation; reliance on reported operating income and net income is necessary.
• Equity buffer is modest (equity ratio 24.9%); shocks could amplify downside via leverage.

Investment Implications

Key Takeaways:

• Top-line growth of +173% YoY with strong profitability (OP 18.11; NI 10.35) underscores business momentum.
• ROE 16.3% is attractive but relies heavily on high leverage (4.51x financial leverage).
• Likely YoY operating margin compression as profit growth lagged revenue growth.
• Balance sheet quality risk from goodwill (136.32) exceeding equity (63.57).
• Cash balance is sizable (78.67), but true liquidity and cash conversion are unknown.

Metrics to Watch:

• Operating cash flow, OCF/NI ratio (>1.0 preferred) and free cash flow trajectory.
• Debt composition, maturity profile, and interest expense; net debt/EBITDA once EBITDA is disclosed.
• Working capital metrics: AR days, deferred revenue/contract liabilities, and payables trends.
• Margin mix by business line and recurrence (subscription/recurring vs project-based).
• Goodwill impairment testing outcomes and acquisition performance KPIs.

Relative Positioning: Within high-growth Japanese tech/services peers, the company shows above-peer revenue growth and healthy current margins but carries higher leverage and goodwill concentration than many listed comparables, making the equity story more sensitive to execution and cash generation.

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