ELEMENTS Q3 2025 presentation: Revenue surges 59% despite M&A-related profit decline

Introduction & Market Context

ELEMENTS Inc. (5246), a Japanese authentication solutions provider, presented its third-quarter fiscal year 2025 results on October 14, 2025, revealing a significant revenue increase primarily driven by its recent Polarithm acquisition. The company’s stock closed at 979 yen, down 3.98% on the day of the presentation, with shares trading within a 52-week range of 401 to 1471 yen.

The digital authentication market continues to expand as online security concerns grow, with ELEMENTS positioning itself as a key player through its multi-factor authentication solutions and eKYC (electronic Know Your Customer) offerings. The company’s recent acquisition of Polarithm represents a strategic move to strengthen its market position, though integration costs have temporarily impacted profitability.

Quarterly Performance Highlights

ELEMENTS reported Q3 revenue of 1,030 million yen, representing a substantial 59% year-over-year increase. This growth was primarily attributed to the consolidation of Polarithm and continued expansion of the company’s LIQUID eKYC solution.

As shown in the following chart of quarterly revenue growth:

However, profitability metrics declined during the quarter. EBITDA was negative 20 million yen, a decrease of 83 million yen year-over-year. After excluding Polarithm M&A-related expenses, EBITDA would have been positive at 5 million yen. Operating profit similarly declined to negative 153 million yen, though this figure improves to negative 100 million yen when excluding acquisition-related costs.

The quarter’s financial summary highlights both the revenue growth and profitability challenges:

On the operational front, ELEMENTS achieved a notable milestone with its "Digital Infrastructure Development Fund Subsidy Project" being adopted by the Ministry of Internal Affairs and Communications. Additionally, ELEMENTS CLOUD Shikoku, a group company, was selected as one of eight business operators for the initiative.

Detailed Financial Analysis

The detailed quarterly financial results reveal several important trends. While revenue grew substantially, gross profit margin decreased to 73.2%, down 10.3 percentage points year-over-year. The company noted that without the Polarithm consolidation, gross profit margin would have been 86.2%, indicating that the core business maintains strong profitability.

The comprehensive quarterly financial metrics show the impact across various performance indicators:

Selling, general, and administrative expenses increased 57% year-over-year to 907 million yen. This increase was primarily due to Polarithm-related expenses and M&A costs. Excluding these factors, SG&A would have been 639 million yen, representing only a slight increase from the previous year.

ELEMENTS has made significant progress in its post-merger integration of Polarithm, achieving substantial cost reductions within six months of the acquisition. Communication costs were reduced by 48%, while personnel costs decreased by 37%. The company also plans to begin transitioning to its own facial recognition engine by September 2025.

As shown in the following chart of post-merger integration progress:

The company’s authentication solutions continue to gain market traction, with cumulative contracts reaching 624 by the end of August 2025, an increase of 32 contracts from the previous quarter. Growth came from both new market segments like matching platforms and existing industries such as finance and telecommunications.

Strategic Initiatives

ELEMENTS is placing strategic emphasis on multi-factor authentication (MFA) solutions, particularly using passkeys (FIDO2) technology to prevent account takeovers. The company announced that a large online securities company will implement its solution by September 2025, highlighting the growing demand for advanced security measures in the financial sector.

The company’s authentication solution architecture and security focus are illustrated in this technical overview:

The balance sheet remains relatively strong despite the acquisition costs, with total assets of 6,301 million yen, total liabilities of 4,275 million yen, and an equity ratio of 24.4%. The increases in both assets and liabilities primarily reflect the Polarithm acquisition.

Forward-Looking Statements

ELEMENTS maintained its full-year projections, citing expected strength in the fourth quarter. Historically, Q4 has been the company’s strongest period, with authentication completion rates for Liquid eKYC typically 110-120% higher than Q3 results.

The company’s full-year projections include:

• Revenue: 3,815-4,000 million yen (68.0-71.3% achieved to date)
• Gross Profit: 2,975-3,125 million yen (68.4-71.9% achieved to date)
• EBITDA: 150-275 million yen (79.6-146% achieved to date)

Looking further ahead, ELEMENTS has set ambitious medium-term goals for November 2027, targeting revenue of 6,000-6,500 million yen with an operating profit margin of 15% and an EBITDA margin of 25%. This represents a growth rate exceeding 30% from FY22 to FY27.

The company’s medium-term financial targets are visualized in this projection chart:

While the Polarithm acquisition has temporarily impacted profitability, management appears confident that the strategic benefits and cost synergies will contribute positively to long-term growth. The company’s focus on authentication solutions positions it well in the expanding digital security market, though investors will likely be watching closely to see if the promised Q4 performance materializes to meet full-year projections.

Full presentation:

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