Quants Research Institute Holdings,Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥16.60B
• Operating Income: ¥4.78B
• Net Income: ¥2.75B
• EPS: ¥47.97

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

AI Financial Analysis

Executive Summary

Verdict: Soft quarter operationally with sharp margin compression and weaker cash conversion despite stable revenue. Revenue in FY2025 Q4 was 166.02, up a modest 0.3% YoY, while operating income fell 42.1% to 47.78 and net income declined 51.4% to 27.47. Gross profit was 100.30, implying a robust gross margin of 60.4%, but operating margin contracted materially to 28.8% from 49.9% a year ago. Net margin fell to 16.6% from about 34.2% in the prior period, a compression of roughly 1,760 bps. The effective tax rate rose to 42.4%, depressing net income; tax burden (NI/EBT) was 0.576 vs a normal benchmark >0.70. Operating cash flow of 13.02 covered only 47% of net income (OCF/NI 0.47x), indicating weaker earnings quality this period, likely due to a sizable accounts receivable build (+6.03 YoY to 9.74). Financing cash outflow was large at -70.09, and equity shrank to 51.04 from a reported prior 89.13, consistent with substantial capital returns or equity structure changes; retained earnings fell 58.9% YoY to 39.68. Despite the above, the balance sheet remains conservatively financed with minimal interest-bearing debt (0.15) and debt/capital of 0.3%. Free cash flow was positive at 9.51, but below net income, highlighting near-term cash conversion challenges. DuPont suggests strong asset turns (2.04x) and still-solid profitability, but the equity denominator contracted, inflating calculated ROE (53.8%) and making year-on-year comparisons less meaningful. Working capital movements (AR up 162%) are the key swing factor behind cash flow underperformance. No dividends were paid (DPS ¥0), and DOE is effectively 0%, though the large financing outflow implies capital returns likely occurred via share-related transactions. Near term, the focus should be on normalizing receivables, sustaining high gross margins while controlling SG&A, and mitigating the high effective tax rate. Forward-looking, maintaining revenue momentum, improving cash conversion, and clarifying capital allocation policy post the equity reduction will be critical to support valuation and reduce risk perceptions.

Profitability Analysis

DuPont 3-Factor: ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Using provided metrics: NPM ≈ 16.6%, AT ≈ 2.044x, Leverage ≈ 1.59x, yielding a calculated ROE ≈ 53.8% (note this is likely inflated by a smaller equity base after capital returns; average equity would lower this figure). The component that changed the most YoY is margin: operating margin fell from ~49.9% to 28.8% (−2,110 bps), and net margin fell from ~34.2% to ~16.6% (−1,760 bps), while asset turnover remained strong at ~2.0x. Business drivers: revenue was flat, but a higher cost base or lower pricing/utilization compressed operating margin; the high effective tax rate (42.4%) further reduced net margin. Interest burden is benign (EBT/EBIT 0.999), consistent with minimal leverage. Sustainability: the margin compression may partly reverse if SG&A is right-sized and pricing/product mix normalize, but the elevated tax rate may persist absent structural tax planning. Concerning trends: SG&A of 52.28 against flat sales implies deleveraging; with revenue +0.3% and operating profit −42.1%, operating leverage turned sharply negative, signaling cost pressure or mix deterioration.

Growth Assessment

Top-line growth was essentially flat (+0.3% YoY), suggesting limited near-term demand expansion. Profit growth deteriorated sharply, with operating income −42.1% and net income −51.4%, driven by margin compression and a higher effective tax rate. Revenue quality is mixed: gross margin remains high at 60.4%, indicating pricing power/productivity, but the translation to operating profit weakened. With asset turnover at 2.0x, operational efficiency is sound, but wage inflation or higher overheads likely pressured SG&A. Outlook hinges on: (1) normalizing working capital to convert earnings to cash; (2) stabilizing operating margin via cost discipline; (3) addressing the tax burden to protect net margins. Absent stronger revenue growth catalysts, near-term earnings recovery will depend more on margin management and cash discipline than on top-line acceleration.

Financial Health

Liquidity: Current ratio is not calculable from disclosures; however, current assets are 62.58 versus total liabilities 30.19, and cash & equivalents are 41.18, indicating ample liquidity headroom. No explicit warning thresholds are breached (current ratio <1.0 not evidenced). Solvency: Interest-bearing debt is very low at 0.15, with debt/capital of 0.3% and effectively no leverage risk; D/E reported at 0.59x appears inconsistent with the minimal debt disclosed, but overall leverage is clearly conservative. Maturity mismatch: Short-term loans are 0.09 versus substantial current assets (62.58), suggesting minimal refinancing risk in absolute terms. Equity shrank to 51.04 from a previously reported 89.13, reflecting significant capital returns or equity movements; while this increases financial leverage mechanically, the company still maintains a net cash position. Off-balance sheet obligations: Not disclosed.

Notable B/S Changes

Accounts Receivable: +6.03 (+162.2%) - Indicates extended collection cycles or back-half revenue recognition; near-term cash conversion risk. Treasury Stock: +24.26 (+97.0%) - Large change in contra-equity suggests significant share-related transactions (retirement/disposal), impacting equity and per-share metrics; monitor capital policy. Accounts Payable: +1.95 (+84.7%) - Higher payables may partially offset AR-driven cash needs; watch for normalization to avoid supplier strain. Short-term Loans: -0.25 (-72.9%) - Deleveraging on the short end; lowers financial risk but increases reliance on internal cash. Long-term Loans: -0.10 (-63.2%) - Further deleveraging; consistent with strong net cash position. Retained Earnings: -56.78 (-58.9%) - Suggests substantial payouts or transfers; reduces equity cushion and could limit future dividend/buyback capacity if not offset by earnings.

Cash Flow Quality

OCF/Net Income is 0.47x, below the 0.8 threshold, indicating weak cash conversion this period. The primary driver appears to be working capital: accounts receivable rose 162% YoY to 9.74, consistent with revenue recognition outpacing cash collection. Free cash flow was positive at 9.51 (OCF 13.02 less investing CF of -3.51), sufficient for maintenance needs but below net income, implying some reliance on balance sheet strength for shareholder returns. No clear signs of working capital manipulation are evident from disclosures, but the magnitude of AR growth warrants close monitoring for collectability and DSO trends. With minimal debt, liquidity remains comfortable, but sustaining FCF improvement will be necessary if the company intends to continue capital returns.

Dividend Sustainability

Dividends were effectively zero this year (DPS ¥0; DOE 0.0%), so coverage is not a constraint. However, financing cash outflows were large (-70.09), implying capital returns via share-related actions; sustainability of such outflows depends on future FCF and cash balances. With FCF at 9.51 and cash & equivalents at 41.18, the company could fund modest ongoing returns, but repeating FY2025-scale outflows would require either improved OCF or drawing down cash. Policy clarity (regular dividend vs opportunistic buybacks) is needed, particularly given the sharp reduction in retained earnings (−58.9% YoY).

Risk Assessment

Business risks include Margin pressure risk: operating margin compressed by ~2,110 bps YoY on flat sales, indicating cost inflation or adverse mix., Execution risk in cost control: SG&A deleveraging against stagnant revenue., Client collection/credit risk: accounts receivable up 162% YoY, raising DSO and collectability concerns., Tax environment risk: high effective tax rate (42.4%) structurally depresses net income., Industry demand cyclicality for data/analytics/IT services, potentially impacting utilization and pricing..

Financial risks include Earnings quality risk: OCF/NI 0.47x and accruals ratio 17.8% indicate reliance on accruals and working capital., Capital allocation risk: large financing outflow and equity shrink reduce balance sheet buffers if repeated., Refinancing profile: short-term debt ratio 63% of a very small debt base; absolute refinancing risk is low but concentration in short-term instruments requires monitoring., Potential covenant/metrics opacity: many items unreported, limiting visibility into liquidity covenants..

Key concerns include Cash conversion weakness tied to receivables growth., Sustainability of high gross margin amid SG&A cost pressure., Persistence of elevated tax rate., Impact of substantial equity reduction on future ROE and capital flexibility..

Investment Implications

Key takeaways include Top line flat, but margins compressed sharply; operating margin down ~2,110 bps YoY., Cash conversion weak (OCF/NI 0.47x) due to AR build; FCF positive but below NI., Balance sheet conservative with net cash and minimal debt; liquidity sound despite large financing outflow., Calculated ROE inflated by smaller equity base post capital returns; underlying profitability still supported by high asset turnover., High effective tax rate materially depresses net income; scope for optimization could lift EPS..

Metrics to watch include DSO and AR turnover; reversal of AR build., Operating margin and SG&A-to-sales ratio trajectory., Effective tax rate and tax burden (NI/EBT)., FCF (OCF less capex) and cash balance after capital returns., Revenue growth reacceleration and booking visibility..

Regarding relative positioning, Within Japan small/mid-cap IT/data analytics peers, the company exhibits superior asset turnover and high gross margins but weaker cash conversion and a heavier tax burden this period; balance sheet strength (net cash) remains a differentiator.