AXEL MARK INC. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥973M
• Operating Income: ¥-520M
• Net Income: ¥-755M
• EPS: ¥-49.58

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: FY2025 Q4 was a weak quarter marked by a sharp top-line contraction and deep operating losses, with only balance-sheet liquidity providing a cushion. Revenue fell to 9.73 (−48.7% YoY), with gross profit of 1.05 and gross margin at 10.8%, indicating severe pricing pressure and/or unfavorable mix. Operating income deteriorated to −5.20 and ordinary income to −6.72, with net income at −7.63 (EPS −49.58 yen), reflecting both operating underperformance and non-operating burdens. Non-operating line items netted to a loss (0.15 income vs 1.67 expense), including an equity-method loss of −1.12 that weighed on ordinary income. EBITDA was −5.17, translating to an EBITDA margin of −53.1%, underscoring negative operating leverage at the current volume. Cash flow quality was weak: operating cash flow came in at −4.66, only 0.61x of net loss absorption, failing the >1.0 high-quality threshold. Free cash flow was −6.99 after capex, implying continued cash burn. Liquidity remains a bright spot: cash and deposits of 9.19 and current assets of 10.94 comfortably cover current liabilities of 5.00 (current ratio 219%, quick ratio 209%). Leverage is moderate (D/E 0.65x) and interest expense is negligible, but negative earnings render interest coverage meaningless despite low debt. The balance sheet shows accumulated deficits (retained earnings −12.86), which limits dividend capacity and raises dilution risk if losses persist. Equity-method losses (−1.12) accounted for a meaningful share of the deficit, highlighting affiliate performance drag. Margin comparison vs prior year cannot be precisely quantified due to missing YoY margin data, but the current operating margin is roughly −53% on reported figures, signaling a dramatic compression from a sustainable level. The effective tax rate is near zero given losses (−0.5%), as expected. Investing cash outflow of −2.33 and financing inflow of 11.08 suggest reliance on external capital (likely equity issuance) to fund operations. Forward-looking, restoring gross margin and cutting SG&A are essential to stem cash burn; given the current cash on hand, runway appears limited if quarterly OCF remains at this level. Overall, the quarter signals the need for urgent cost rationalization and revenue stabilization, with affiliate performance and non-operating items also requiring attention.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin × Asset Turnover × Financial Leverage = −78.4% × 0.734 × 1.65 ≈ −94.9% ROE (matches reported). The dominant driver of the ROE collapse is the extremely negative net margin (−78.4%), as asset turnover (0.734x) and leverage (1.65x) are within a typical range for a small-cap tech/services firm. The negative net margin stems from a combination of low gross margin (10.8%) and outsized SG&A relative to sales (6.25 vs gross profit 1.05), producing a −5.20 operating loss; non-operating losses (notably equity-method −1.12) further deepened the deficit. This deterioration appears operational (weak sales and heavy fixed costs) rather than a one-off accounting event; while non-operating losses may normalize, sustainable recovery requires structural gross margin and SG&A improvement. With revenue down 48.7% YoY, negative operating leverage amplified losses; absent cost resizing, profitability will remain pressured. Concerning trend flags: SG&A (6.25) vastly exceeds gross profit (1.05), indicating a structurally unprofitable run-rate at this revenue base. Equity-method losses (−1.12) are a secondary but material drag on ordinary income.

Growth Assessment

Top-line contracted 48.7% YoY to 9.73, pointing to a significant slowdown in core operations and/or portfolio changes. Gross profit of 1.05 implies weak unit economics at the current mix, with gross margin at 10.8% providing little buffer for SG&A. Operating and net losses (−5.20 and −7.63) indicate negative operating leverage amid the demand slump. Non-operating elements intensified the decline (net non-operating loss of −1.52), including equity-method losses, suggesting affiliates are also under pressure. Revenue sustainability is questionable until product pipeline, client demand, or monetization improves; absent this, cost normalization is imperative. Outlook: near term biased to stabilization rather than growth, with focus on margin repair (pricing, mix, COGS control) and SG&A right-sizing. Any improvement in affiliate results (equity-method) would help ordinary income but won’t offset core operating losses without a material cost reset or revenue rebound.

Financial Health

Liquidity is strong: current assets 10.94 vs current liabilities 5.00 yields a current ratio of 219% and quick ratio of 209%, with cash 9.19 covering 184% of current liabilities. Solvency appears manageable: total liabilities 5.21 vs equity 8.04 implies D/E of 0.65x (conservative), and long-term loans are modest at 0.20. No warning thresholds breached (Current Ratio > 1.0, D/E < 2.0). Maturity mismatch risk is low given ample cash and limited short-term obligations; accounts payable is small at 0.39. However, persistent operating losses erode equity over time (retained earnings already −12.86), raising future capital needs risk if turnaround lags. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF of −4.66 vs net income of −7.63 yields OCF/NI of 0.61, below the 0.8 threshold, indicating weak earnings-to-cash conversion even after losses; working capital may have partially cushioned cash outflow, but the core cash burn remains substantial. Free cash flow is −6.99 (after capex of −0.20), unsupportive of shareholder returns or discretionary investment. Investing CF of −2.33 suggests additional spend or asset movements beyond maintenance capex, adding to outflows. Financing CF of +11.08 indicates reliance on external capital to fund deficits, likely equity issuance given negligible interest expense and low debt, implying dilution risk if continued. No clear signs of working capital manipulation are evident from the limited breakdown, but the scale of losses dwarfs any WC effects.

Dividend Sustainability

Dividends are unreported; given the net loss (−7.63), negative retained earnings (−12.86), and negative FCF (−6.99), capacity to pay a dividend is effectively constrained. Payout ratios are not calculable, but economic coverage is clearly insufficient. Policy-wise, preserving liquidity to fund operations and restructuring is the rational near-term stance; any dividend resumption would require a return to sustained positive OCF and FCF.

Risk Assessment

Business Risks:

• Severe revenue contraction (−48.7% YoY) indicating demand weakness or product/portfolio issues
• Low gross margin (10.8%) provides minimal absorption for fixed costs
• Negative operating leverage with SG&A (6.25) far above gross profit (1.05)
• Affiliate performance drag: equity-method losses (−1.12) weighing on ordinary income
• Potential impairment risk on goodwill (0.63) and intangibles (0.72) if performance remains weak
• Execution risk on restructuring and cost reductions to match the reduced scale

Financial Risks:

• Persistent negative OCF (−4.66) and FCF (−6.99) necessitating external funding
• Dilution risk from continued equity financing (financing CF +11.08)
• Erosion of equity base over time due to losses (retained earnings −12.86)
• Limited interest burden now, but constrained debt capacity given losses

Key Concerns:

• OCF/Net Income at 0.61 (<0.8) flags weak earnings quality and cash conversion
• Operating margin roughly −53% implies structural unprofitability at current revenue
• Reliance on non-operating items and affiliates introduces additional volatility
• Runway risk if quarterly cash burn persists despite current cash 9.19

Investment Implications

Key Takeaways:

• Top-line halved YoY with gross margin at only 10.8%, driving deep operating losses
• ROE at −94.9% driven overwhelmingly by negative net margin; asset turnover and leverage are secondary
• Equity-method loss (−1.12) materially hurt ordinary income, compounding operating weakness
• Cash burn is significant (OCF −4.66; FCF −6.99), funded by financing inflows (11.08)
• Liquidity is currently adequate (cash 9.19; current ratio 219%), but not a solution if losses persist
• Dividend capacity is effectively nil given losses and negative retained earnings

Metrics to Watch:

• Quarterly revenue trend and gross margin (price/mix and COGS control)
• SG&A trajectory versus sales (evidence of right-sizing and operating leverage)
• Operating cash flow and FCF (cash burn and runway)
• Equity-method income/loss (affiliate recovery or further drag)
• Impairment charges on goodwill/intangibles
• Share count and financing cash flows (dilution signal)

Relative Positioning: Relative to domestic small-cap digital/content peers, the company is currently sub-scale with inferior gross margin and negative operating leverage, offset only by a comparatively liquid balance sheet; recovery depends on rapid cost realignment and stabilization of core revenue.

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