Aeria Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥11.80B
• Operating Income: ¥542M
• Net Income: ¥-352M
• EPS: ¥15.64

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Aeria Inc. (TSE: 3758) reported FY2025 Q3 consolidated results under JGAAP with revenue of 11,805 million yen, declining 20.7% year over year, indicating a material top-line contraction. Despite the revenue decline, operating income held at 542 million yen (flat YoY per disclosure), suggesting cost discipline and operating resilience. Gross profit was 4,395 million yen, implying a gross margin of 37.2%, which remains healthy given the sales contraction. Operating margin was approximately 4.6% (operating income/revenue), reflecting moderate profitability in a lower-revenue environment. Ordinary income of 389 million yen indicates net non-operating expenses, consistent with reported interest expense of 98 million yen. Net income was 326 million yen (flat YoY), resulting in a net margin of 2.76%, underscoring the compression from operating to bottom-line profitability due to financing costs. DuPont analysis shows ROE of 3.71% derived from a 2.76% net margin, 0.563x asset turnover, and 2.39x financial leverage, indicating modest shareholder returns primarily constrained by thin net margins. Liquidity appears strong with current assets of 16,020 million yen versus current liabilities of 6,802 million yen, yielding a current ratio of 235.5% and working capital of 9,218 million yen. The balance sheet is moderately leveraged with total liabilities of 11,682 million yen against equity of 8,783 million yen (debt-to-equity of 1.33x), and an implied equity ratio of roughly 41.9% based on reported assets and equity. Interest coverage stands at about 5.5x (operating income/interest), adequate but offering limited cushion if earnings weaken further. The company reported no dividend for the period (DPS 0), consistent with a conservative capital stance amid softer sales and modest ROE. Cash flow statement items, cash balance, depreciation and amortization, and EBITDA were not disclosed (values shown as zero), limiting cash flow quality assessment. With OCF and FCF not available, we focus on earnings-based indicators, which show stable operating income against a significantly weaker top line—a sign of cost flexibility but raising questions on demand sustainability. Tax expense was 68 million yen; if ordinary income approximates pre-tax income, the indicative tax rate would be around the mid-teens, though this is uncertain without full detail on extraordinary gains/losses. Overall, Aeria exhibits solid liquidity and manageable leverage, but profitability remains modest, and the sustainability of cost-driven resilience is a key consideration given the 20.7% revenue decline. Data limitations around cash flows, depreciation, and cash balances constrain a full quality-of-earnings review, so subsequent disclosures will be important to validate earnings durability and capital allocation flexibility.

Profitability Analysis

ROE of 3.71% is explained by net margin of 2.76%, asset turnover of 0.563x, and financial leverage of 2.39x per the DuPont framework. Operating margin is approximately 4.6% (542/11,805), indicating a reasonable spread over net margin but showing compression from operating to ordinary income due to interest costs. Gross margin of 37.2% demonstrates decent value capture despite lower sales, suggesting pricing or mix helped stabilize gross profitability. The flat operating income YoY against a 20.7% revenue decline implies meaningful cost containment and operating leverage management; however, negative operating leverage risk remains if sales pressure persists. Ordinary income at 389 million yen indicates net non-operating expense drag, primarily from interest expense of 98 million yen. Net margin at 2.76% is modest and constrains ROE despite leverage. With depreciation and EBITDA not disclosed, assessment of margin quality and non-cash components is limited; operating income is used as a proxy for EBIT under JGAAP. Interest coverage at about 5.5x is acceptable but not robust, highlighting sensitivity to further earnings volatility. Overall profitability is stable at the operating level but thin at the bottom line, warranting focus on sustaining gross margin and managing financing costs.

Growth Assessment

Revenue declined 20.7% YoY to 11,805 million yen, indicating headwinds in core businesses or a normalization from prior elevated levels. Operating income remained flat YoY at 542 million yen despite the top-line decline, implying significant cost flex or mix improvement. Net income was stable at 326 million yen, reflecting controlled SG&A and manageable non-operating items, but growth is currently absent. The sustainability of current profitability depends on restoring revenue trajectory and retaining gross margin near 37%. Without cash flow, depreciation, or segment details, it is difficult to ascertain whether the margin stability stems from one-off cost actions or structural improvements. The ordinary income step-down from operating income points to financing drag that may cap growth in net profits absent revenue recovery or deleveraging. Near-term outlook hinges on demand stabilization, pipeline of titles/services, and monetization efficiency; absent evidence of revenue reacceleration, profit growth may be limited. Monitoring subsequent quarters for revenue inflection, order backlog or bookings (if applicable), and product launches will be key to assessing growth durability.

Financial Health

Total assets were 20,981 million yen with total equity of 8,783 million yen, implying an equity ratio around 41.9% (despite the reported 0% placeholder). Total liabilities were 11,682 million yen, yielding a debt-to-equity ratio of 1.33x (liabilities/equity). Liquidity is strong: current assets of 16,020 million yen and current liabilities of 6,802 million yen result in a current ratio of 235.5% and working capital of 9,218 million yen. The quick ratio matches the current ratio as inventories were not disclosed. Interest expense of 98 million yen versus operating income of 542 million yen gives interest coverage of roughly 5.5x, adequate under current earnings but sensitive to further profit compression. Capital structure appears balanced with moderate leverage and ample liquidity to support operations. Lack of disclosed cash and equivalents prevents assessing near-term cash runway, but the sizeable current asset base relative to current liabilities is a positive indicator.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, cash balance, and depreciation were not disclosed (zeros represent non-reporting). As a result, we cannot compute OCF/Net Income, free cash flow, or assess cash conversion. Earnings quality analysis is therefore constrained; we rely on income statement indicators and working capital positioning. Stable operating income despite a steep revenue decline suggests effective cost control, but without OCF data we cannot confirm the cash nature of earnings or the magnitude of working capital swings. The large working capital buffer (9,218 million yen) is supportive of liquidity, but changes during the period are unknown. Upcoming disclosures of cash flows and non-cash expense detail will be critical to validate earnings durability.

Dividend Sustainability

The company reported no dividend (DPS 0) and a payout ratio of 0%, consistent with capital preservation while ROE is modest at 3.71%. Without cash flow data, FCF coverage cannot be assessed; any payout decisions would need to consider visibility on OCF and investment needs. Given the decline in revenue and moderate leverage, a conservative stance appears prudent until earnings growth and cash generation are clearer. Future policy could pivot if profitability and cash conversion improve, but current disclosures point to retention of earnings to support balance sheet strength and potential reinvestment.

Risk Assessment

Business Risks:

• Top-line contraction of 20.7% YoY indicates demand or product-cycle weakness
• Execution risk in sustaining gross margin at 37% amid lower volumes
• Potential negative operating leverage if revenue declines persist
• Competitive intensity and content/performance risk in core businesses (e.g., games/services if applicable)
• Dependence on successful new releases or pipeline to reaccelerate growth

Financial Risks:

• Interest expense of 98 million yen limits ordinary income; interest coverage ~5.5x
• Moderate leverage with liabilities/equity at 1.33x increases sensitivity to earnings volatility
• Lack of disclosed cash flow and cash balance limits visibility on liquidity duration
• Potential tax rate variability given limited disclosure of pre-tax income components

Key Concerns:

• Sustainability of flat operating income in the face of a 20.7% revenue decline
• Thin net margin at 2.76% constraining ROE to 3.71%
• Insufficient cash flow disclosure to validate earnings quality and FCF
• Financing costs compressing ordinary and net income

Investment Implications

Key Takeaways:

• Revenue declined 20.7% YoY to 11,805 million yen while operating income held at 542 million yen
• Gross margin remains healthy at 37.2%, supporting operating resilience
• ROE is modest at 3.71%, constrained by a 2.76% net margin
• Liquidity is strong with a current ratio of 235.5% and working capital of 9,218 million yen
• Moderate leverage (liabilities/equity 1.33x) and interest coverage of ~5.5x
• No dividend currently; capital preservation favored amid uncertain growth
• Cash flow details not disclosed, limiting assessment of earnings quality

Metrics to Watch:

• Quarterly revenue trajectory and booking/backlog indicators
• Gross margin sustainability and SG&A ratio
• Ordinary income and interest coverage trends
• Cash and equivalents, OCF, and FCF once disclosed
• Working capital movements (receivables and payables) when available
• Any changes in leverage and equity ratio

Relative Positioning: Within Japanese small/mid-cap entertainment/IT peers, Aeria shows stronger liquidity and comparable leverage with weaker recent revenue momentum, stable but modest profitability, and a conservative dividend stance pending clearer cash flow visibility.

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