Terra Drone Corporation FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.17B
• Operating Income: ¥-889M
• Net Income: ¥-408M
• EPS: ¥-50.79

Income Statement

Balance Sheet

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: Terra Drone’s FY2026 Q3 (cumulative) shows modest top-line growth but materially loss-making operations, with liquidity remaining very strong. Revenue reached 31.72 (100M JPY), up 1.7% YoY, while gross profit was 15.75, implying a healthy gross margin of 49.7%. SG&A expenses were 19.80, exceeding gross profit by 4.05 and driving an operating loss of -8.89 (operating margin about -28.0%). The gap between gross profit minus SG&A (-4.05) and operating income (-8.89) indicates other operating items of roughly -4.84, likely one-off expenses or impairment-like costs not itemized. Non-operating income and expenses largely netted out (1.48 vs 1.43), contributing little to earnings (-0.05 improvement). Ordinary income was -6.76 (ordinary margin about -21.3%), but profit before tax improved to -3.97, implying net extraordinary gains of roughly +2.79. Net income came in at -4.85 (net margin -15.3%), while total comprehensive income was weaker at -8.21, suggesting OCI losses—likely valuation effects from investment securities (12.43 on the balance sheet). ROE (DuPont) is calculated at -7.0%, driven mainly by negative margins rather than leverage, with asset turnover at 0.367 and financial leverage at a modest 1.25x. Liquidity is a bright spot: current ratio is 526.3% and quick ratio 508.9%, backed by cash and deposits of 41.46 against current liabilities of 11.75. Leverage is conservative with D/E at 0.26x and total loans of 4.41, yet interest coverage is deeply negative at -51.9x, reflecting operating losses rather than an excessive interest burden. Margin comparisons in basis points versus the prior year are not quantifiable due to missing historical margin disclosures; only revenue growth (+1.7% YoY) is available. Earnings quality assessment is constrained by the absence of cash flow disclosure (OCF and FCF unreported), though the reliance on extraordinary gains to lift PBT raises a prudence flag. With retained earnings at -18.13 and losses continuing, dividends appear unlikely in the near term. Forward-looking, the company must narrow the gap between gross profit and SG&A and avoid further other operating charges to reach break-even; the strong cash position provides runway to execute on this plan. Investors should watch whether revenue growth accelerates and SG&A scales more efficiently, as these will determine the trajectory to profitability.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-15.3%) × 0.367 × 1.25 ≈ -7.0%. The largest driver of ROE deterioration is the negative net profit margin, not leverage or turnover. The business reason is cost structure: SG&A (19.80) exceeds gross profit (15.75), and additional other operating costs (~4.84) deepen the operating loss. This reflects scale inefficiency (overhead ahead of revenue) and potential one-off operating items (e.g., impairment, provisions) that are not disclosed but implied by the arithmetic. Sustainability: the negative margin is not sustainable; improvement depends on either revenue scaling or cost rationalization. Asset turnover of 0.367 is moderate for a technology/services model and is less of a concern than margin. Warning signs include SG&A growth outpacing revenue growth; while prior SG&A is unreported, in-period SG&A at 62% of sales plus other operating charges is the central margin pressure point.

Growth Assessment

Revenue grew 1.7% YoY to 31.72, a modest pace that is insufficient to absorb current fixed costs. Gross margin at 49.7% is healthy, indicating underlying service/product unit economics can be attractive if overhead is right-sized. Operating margin at roughly -28.0% highlights lack of operating leverage; the implied other operating expenses (4.84) further cloud visibility on recurring profitability. Ordinary margin at -21.3% improved to a PBT margin of -12.5% via extraordinary gains (+2.79), which are not recurring drivers of growth. With OCI pushing total comprehensive income to -8.21, capital market exposures (investment securities) add volatility. Outlook hinges on accelerating top-line growth and/or SG&A discipline; without evidence of accelerating demand or cost control (unreported), near-term profit inflection remains uncertain.

Financial Health

Liquidity is very strong: current ratio 526.3% and quick ratio 508.9%, with cash and deposits of 41.46 covering current liabilities (11.75) 3.5x. No warning on current ratio (<1.0) as it is well above thresholds. Solvency is conservative: D/E is 0.26x, with total loans of 4.41 (0.10 short-term, 4.31 long-term). Interest-bearing debt is modest relative to total equity (69.35) and cash. Maturity mismatch risk is low: cash and current assets comfortably exceed current liabilities; short-term borrowings are minimal. However, interest coverage is -51.9x due to operating losses, so debt service relies on cash reserves rather than operating cash generation. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF and FCF are unreported, so OCF/Net Income cannot be assessed and no quantitative judgment on earnings quality via cash conversion can be made. The negative operating income and interest coverage indicate operating cash generation is likely weak, but this cannot be confirmed without OCF. Cash on hand (41.46) provides a cushion for ongoing losses and capex needs (capex unreported). Dividend and share repurchase cash outflows are unreported. With limited visibility into working capital components (receivables unreported, inventories 2.05), potential working capital swings or timing effects cannot be evaluated, and no manipulation indicators can be asserted from available data.

Dividend Sustainability

Dividend data are unreported, and retained earnings are negative (-18.13), indicating a low likelihood of near-term cash dividends under typical JGAAP corporate policies. Payout ratio and FCF coverage are not calculable due to missing NI-to-dividend linkage and OCF/FCF data. Given continued net losses and reliance on cash reserves to fund operations, sustaining or initiating dividends would be challenging without a clear path to positive OCF.

Risk Assessment

Business Risks:

• Scale inefficiency: SG&A (62% of sales) plus other operating costs drive sustained operating losses.
• Execution risk on growth: 1.7% YoY revenue growth is insufficient to achieve operating leverage.
• Dependence on extraordinary gains to narrow PBT loss, indicating non-core items influencing results.
• Technology and regulatory risk in drone/UTM markets, including airspace regulation changes and certification requirements.
• Project timing and customer capex sensitivity affecting revenue recognition and backlog conversion.

Financial Risks:

• Negative interest coverage (-51.9x) implies debt service relies on cash, not earnings.
• OCI volatility (comprehensive loss -8.21 vs NI -4.85) likely tied to investment securities valuations (12.43 on balance sheet).
• Potential for future equity financing due to ongoing losses, creating dilution risk.
• Implied other operating charges (~4.84) may reflect impairments or provisions, which could recur.

Key Concerns:

• Operating loss of -8.89 with other operating items not disclosed, limiting visibility.
• Retained earnings deficit (-18.13) constrains capital allocation flexibility, including dividends.
• Missing cash flow disclosures (OCF/FCF) inhibit assessment of runway and cash burn dynamics.

Investment Implications

Key Takeaways:

• Top-line growth of +1.7% YoY is positive but too modest relative to the cost base.
• Gross margin of 49.7% suggests healthy unit economics if scale and cost controls improve.
• Operating margin (~-28.0%) reflects SG&A intensity (62% of sales) and additional operating charges (~4.84).
• Liquidity is robust (current ratio 526%, cash 41.46); leverage is low (D/E 0.26x).
• Earnings rely partly on non-core items: extraordinary gains (~+2.79) and volatile OCI (-3.36 vs NI).
• Interest coverage is deeply negative; operations are not funding debt service.

Metrics to Watch:

• SG&A-to-sales ratio and trajectory of other operating items.
• Operating margin and break-even progress.
• Order backlog and revenue growth acceleration beyond +1.7% YoY.
• Operating cash flow and cash burn rate (when disclosed).
• Movements in OCI tied to investment securities valuation.
• Cash balance versus cumulative losses and capex needs.

Relative Positioning: Within Japan’s emerging drone/UTM ecosystem, Terra Drone exhibits favorable gross margins and a strong balance sheet liquidity position but trails on operating profitability, with cost scale and other operating charges masking the underlying unit economics.

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