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

Axel Mark Co., Ltd. (36240) reported FY2025 Q4 consolidated results under JGAAP marked by a steep top-line contraction and deep operating losses. Revenue was ¥973 million, down 48.7% YoY, indicating severe pressure on the core business. Gross profit was ¥104.8 million, translating to a gross margin of 10.8%, which is thin for most digital content/services models and suggests pricing pressure and/or cost inefficiencies. Operating income was a loss of ¥520 million, implying an operating margin of approximately -53.4% and pointing to a heavy fixed-cost burden relative to the reduced revenue base. Ordinary loss widened to ¥672 million, and net loss reached ¥763 million, equating to a net margin of -78.4%. DuPont analysis indicates an ROE of -94.9%, driven primarily by the severe net margin, with asset turnover of 0.734 and financial leverage of 1.65 providing limited offset. EBITDA was -¥517.0 million and the EBITDA margin was -53.1%, underscoring that the earnings shortfall is not driven primarily by non-cash charges (D&A was only ¥3.0 million) but rather by core operations. Operating cash flow (OCF) was -¥466 million, less negative than net income, yielding an OCF/Net Income ratio of 0.61, which signals some cash cost discipline but still substantial cash burn. Free cash flow (FCF) was -¥699 million after ¥233 million of investing outflows, requiring significant external financing. Indeed, financing cash inflow was ¥1,108 million, which covered the FCF deficit and suggests reliance on capital markets or borrowings to sustain operations. Liquidity metrics appear sound with a current ratio of 219% and quick ratio of 209%, supported by working capital of ¥594 million, though exact cash holdings were not disclosed in the dataset. The balance sheet shows total assets of ¥1,325 million and total liabilities of ¥521 million, implying moderate leverage (debt-to-equity of 0.65x) but an equity base that is vulnerable to further losses. Interest expense was minimal at ¥0.10 million, and the negative interest coverage reflects operating losses rather than a heavy interest burden. Dividend distributions are suspended (DPS ¥0.00) and unsurprisingly so, given negative earnings and FCF. Overall, the profile reflects a company in turnaround or contraction, with adequate near-term liquidity but heightened solvency risk if losses persist. Data limitations exist where some items show as zero due to non-disclosure (e.g., equity ratio, cash and equivalents, share counts), and the analysis focuses on disclosed non-zero items.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin of -78.42%, asset turnover of 0.734, and financial leverage of 1.65 combine to an ROE of -94.9%, indicating margin-driven erosion of equity value. Gross margin of 10.8% is low, suggesting weak pricing power and/or elevated delivery costs relative to revenue. Operating margin of approximately -53.4% implies substantial operating deleverage after a 48.7% YoY revenue decline. With D&A only ¥3.0 million, the EBITDA of -¥517.0 million demonstrates that operating expense levels (personnel, SG&A, or content costs) are the primary driver of losses. Ordinary loss of ¥672 million indicates minimal contributions from non-operating items (interest expense only ¥0.10 million). The effective tax line shows a small tax benefit (income tax -¥3.50 million), consistent with losses; the reported effective tax rate metric is 0.0%, but tax effects are not driving results. Operating leverage is high: a near 50% revenue contraction cascaded into a more than ¥500 million operating loss, implying significant fixed costs. Margin quality is weak, with both gross and operating margins under pressure; there is no evidence of material one-off gains offsetting the shortfall. Sustained negative EBITDA indicates that break-even would require a meaningful uplift in revenue and/or substantial cost restructuring.

Growth Assessment

Revenue declined 48.7% YoY to ¥973 million, signaling a pronounced contraction in demand or portfolio scale. The magnitude of the decline suggests structural rather than purely cyclical headwinds, absent evidence of one-off comparatives. Profitability deteriorated with net margin at -78.4%, and EBITDA margin at -53.1%, underscoring weak profit quality. Given D&A is small (¥3.0 million), the earnings weakness is primarily operational, not accounting-driven. Ordinary and net losses suggest no offset from financial or extraordinary items. Without segment or backlog data, visibility on revenue sustainability is limited, but the steep drop raises concerns about customer retention, product lifecycle issues, or monetization challenges. Investing cash outflows of ¥233 million amidst falling revenue may reflect continued development or maintenance capex/intangibles, which could support future growth if returns materialize; however, negative OCF tempers near-term prospects. The OCF/NI ratio of 0.61 indicates losses are partly non-cash or timing-related, providing slight comfort on cash burn, but not enough to suggest stabilization. Near-term outlook hinges on arresting revenue decline and improving gross margin through mix/pricing or cost of sales efficiencies. Absent evidence of new launches or contracts in the provided data, base-case expectations should remain cautious on growth momentum. Monitoring sequential revenue trends and order intake (if disclosed) will be critical to assess stabilization.

Financial Health

Liquidity is relatively strong on reported metrics: current ratio 219% and quick ratio 209%, with working capital of ¥594.3 million, providing a buffer for near-term obligations (current liabilities ¥499.5 million). Total assets are ¥1,325 million and total liabilities ¥520.9 million, implying moderate leverage; the provided debt-to-equity ratio is 0.65x. Interest expense is very low at ¥0.10 million, suggesting limited interest-bearing debt or low-cost funding; thus, financial expenses are not the primary earnings headwind. Solvency risk arises from recurring large losses, which can erode the ¥804 million equity base if not stemmed. Financing inflows of ¥1,108 million in the period indicate reliance on external capital to fund negative FCF, which mitigates immediate liquidity risk but introduces dilution or refinancing risk. The equity ratio is shown as 0.0% in the dataset; as a zero tag represents non-disclosure, not an actual zero, it should not be interpreted as insolvency. Cash and equivalents are also undisclosed in the dataset; therefore, cash runway cannot be precisely determined from the provided figures. Overall capital structure appears manageable today, but sustainability depends on narrowing operating losses or maintaining access to financing.

Cash Flow Quality

Operating cash flow was -¥466 million versus net income of -¥763 million, yielding an OCF/NI ratio of 0.61; cash burn is significant but less severe than accrual losses, indicating some non-cash charges and/or working capital release. Free cash flow was -¥699 million after ¥233 million of investing outflows, reflecting ongoing investment needs amid negative operating performance. EBITDA of -¥517.0 million versus D&A of ¥3.0 million confirms that operating cash shortfall is not driven by large non-cash depreciation; rather, underlying operations are cash-consuming. Working capital specifics (receivables/payables changes) are not disclosed, but the sizable working capital position (¥594.3 million) suggests potential room for optimization; however, absent details, we cannot attribute OCF improvement to WC movements definitively. Financing inflow of ¥1,108 million fully covered FCF, consistent with a period of capital raising or new borrowing. Interest burden is negligible (¥0.10 million), so cash interest is not a drain; the primary determinant of cash flow remains operating performance. Given undisclosed cash balance, cash coverage of near-term liabilities cannot be precisely assessed from the dataset. Overall, earnings quality is weak due to persistent negative EBITDA and reliance on external financing.

Dividend Sustainability

With net loss of ¥763 million, negative OCF of ¥466 million, and FCF of -¥699 million, the current capacity to pay dividends is absent. DPS is ¥0.00 and payout ratio is 0.0%, which is appropriate given the loss-making position. FCF coverage of dividends is 0.00x, reflecting no distributions and negative free cash flow. Near-term restoration of dividends would likely require a return to positive EBITDA and OCF, as well as visibility on sustainable profitability. Capital allocation presently appears focused on funding operations and investments via external financing (¥1,108 million inflow). Policy outlook, based on the data, suggests dividends will remain suspended until earnings and FCF turn positive and leverage/liquidity targets are secured. No guidance on dividend policy is provided in the dataset.

Risk Assessment

Business Risks:

• Sharp revenue contraction (-48.7% YoY) indicating potential structural demand issues
• High operating leverage leading to outsized losses on lower revenue
• Low gross margin (10.8%) reflecting pricing pressure or high delivery costs
• Execution risk in restructuring and cost containment to achieve break-even
• Product/portfolio lifecycle and monetization risk typical for digital/content businesses
• Dependence on external financing to fund operations during turnaround

Financial Risks:

• Sustained negative EBITDA (-¥517.0 million) and OCF (-¥466 million) driving cash burn
• Equity erosion risk from net loss of -¥763 million against ¥804 million equity
• Refinancing/dilution risk given ¥1,108 million financing inflow to cover FCF deficit
• Potential going concern pressure if access to capital tightens before operating improvement
• Limited visibility on cash balance (undisclosed), complicating runway assessment

Key Concerns:

• Ability to stabilize revenue and restore double-digit gross margins
• Reducing fixed cost base to mitigate operating deleverage
• Maintaining financing access while losses persist
• Improving cash conversion and managing working capital

Investment Implications

Key Takeaways:

• Revenue down 48.7% YoY to ¥973 million; severe top-line headwind
• Gross margin of 10.8% and operating margin of approximately -53.4%; weak margin profile
• Net margin of -78.4% drives ROE of -94.9% despite modest leverage (1.65x assets/equity)
• EBITDA -¥517.0 million with minimal D&A (¥3.0 million) indicates underlying operational weakness
• OCF -¥466 million and FCF -¥699 million; reliant on ¥1,108 million financing inflow
• Liquidity metrics (current ratio 219%, quick 209%) provide near-term buffer
• Debt-to-equity 0.65x with very low interest expense; solvency depends on curbing losses

Metrics to Watch:

• Sequential revenue trend and order intake/pipeline disclosures
• Gross margin improvement via pricing/mix and cost of sales control
• Operating expense trajectory and EBITDA break-even timeline
• Operating cash flow and working capital movements
• Details of financing mix (equity vs debt) and dilution/refinancing risk
• Cash and equivalents disclosure to gauge runway

Relative Positioning: Relative to TSE small-cap peers, profitability is materially weaker with negative EBITDA and net margins, while liquidity appears above average on reported current/quick ratios; leverage is moderate, but the company is more dependent on external financing due to negative FCF.

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