Advanced Media,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.17B
• Operating Income: ¥490M
• Net Income: ¥547M
• EPS: ¥41.95

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

Advanced Media Co., Ltd. (TSE:3773) reported FY2026 Q2 (cumulative) consolidated results under JGAAP with revenue of ¥3,175 million, up a modest 0.3% year over year, indicating a flat top line amid a likely mixed demand environment for speech/AI solutions. Gross profit was ¥2,388 million, translating to a very high gross margin of 75.2%, consistent with a software/license and services-heavy mix. Operating income declined 30.4% YoY to ¥490 million, compressing the operating margin to roughly 15.4%, suggesting SG&A and/or R&D cost growth outpaced revenue. Ordinary income was ¥548 million, above operating income, implying positive net non-operating contributions (e.g., interest/dividend income or investment gains). Net income rose 19.9% YoY to ¥655 million and net margin reached 20.6%, unusually higher than the operating margin and pointing to one-off gains or favorable non-operating items outweighing core margin pressure. DuPont decomposition shows ROE of 5.08% = 20.63% net margin × 0.198 asset turnover × 1.24 leverage, highlighting low leverage and low asset intensity as key drivers. Asset turnover of 0.198 is low, consistent with a balance sheet carrying significant cash/financial assets or other low-turnover assets relative to sales for a mid-scale software/AI vendor. Liquidity is very strong with a current ratio of 372% and quick ratio of 370%, and working capital of ¥6,833 million supports operational resilience. Solvency is comfortable with total liabilities of ¥3,663 million against equity of ¥12,903 million (D/E 0.28x) and interest coverage of 83×, signaling negligible financial stress. Operating cash flow was robust at ¥1,437 million, equating to an OCF/NI ratio of 2.19×, which indicates strong cash conversion and likely favorable working capital movements in the period. Financing cash outflow of ¥854 million suggests shareholder returns or debt service; dividends are not reported (DPS ¥0), so this may reflect buybacks or other financing activities. Investing cash flow and cash balances were not disclosed in the XBRL (shown as 0), limiting visibility into capital expenditure and cash on hand; hence free cash flow cannot be determined from the provided data. Effective tax rate computed from disclosed figures appears roughly 26–27% (¥238.6 million tax on an implied pre-tax of about ¥893.6 million), even though the “effective tax rate” metric provided shows 0.0%, which likely reflects data handling rather than economics. Overall, the quarter shows resilient top-line performance, pronounced operating margin compression, and a bottom line supported by non-operating gains and strong cash generation. The balance sheet remains conservative and liquid, providing ample capacity to invest in growth or absorb volatility. Key swing factors ahead include operating expense discipline, pricing/pipeline momentum for speech AI, and the persistence of non-operating income that boosted net profit this period. Data limitations on investing cash flows, cash levels, equity ratio, and shares outstanding constrain precision in FCF and per-share analysis, and conclusions are therefore based on available non-zero data points.

Profitability Analysis

ROE is 5.08%, decomposed as net margin 20.63% × asset turnover 0.198 × financial leverage 1.24. Operating margin is approximately 15.4% (¥490m/¥3,175m), materially below net margin due to positive non-operating effects (ordinary income ¥548m > operating income). Gross margin is very high at 75.2%, supporting the view of a software/service-heavy model with low cost of sales. The 30.4% YoY decline in operating income against +0.3% revenue points to negative operating leverage in the period, likely from elevated SG&A and/or R&D investments (or wage/compute cost inflation). EBITDA is ¥735 million (EBITDA margin 23.1%), indicating some cushion from non-cash depreciation/amortization (¥245 million) but still below prior-year operating performance. Interest burden is minimal (interest expense ¥5.9 million) with coverage at 83×, confirming low financial drag. On a DuPont basis, ROA approximates 4.1% (net margin × turnover), modest for a high-margin software firm due to low turnover, while low leverage (1.24×) tempers ROE. Margin quality appears mixed: gross margin is strong and likely defensible, but operating margin compression suggests higher fixed cost intensity and weaker cost discipline this half. The spread between operating and net margins indicates reliance on non-operating gains this period, which may not be repeatable, warranting a cautious view on underlying profitability.

Growth Assessment

Revenue growth of +0.3% YoY indicates a plateau in near-term demand or timing issues in project/phased deliveries. Operating income fell 30.4% YoY, implying that cost growth (SG&A/R&D) exceeded revenue progression, dampening underlying earnings momentum. Net income rose 19.9% YoY despite weaker operations, likely aided by non-operating or extraordinary gains and possibly favorable financial income. With gross margin at 75.2%, the product mix remains favorable; sustaining growth will depend on pipeline conversion, subscription/recurring revenue traction, and public/private sector IT investment cycles. Profit quality is mixed: cash conversion (OCF/NI 2.19×) is solid, but the disconnect between operating income and net income growth suggests non-core items supported the bottom line. Outlook hinges on normalizing expense growth versus revenue growth; if top-line acceleration returns while costs stabilize, operating leverage could turn positive. Conversely, if revenue remains flat and costs rise (e.g., talent/compute for AI), operating margin could remain under pressure. Given data constraints (no segment/backlog detail), we assume growth is driven by core speech recognition/AI solutions, with potential tailwinds from enterprise digitization and GenAI integration, balanced by competitive intensity from global and domestic AI providers.

Financial Health

Total assets are ¥16,037 million and equity is ¥12,903 million, implying liabilities of ¥3,663 million and a debt-to-equity ratio of 0.28×—a conservative capital structure. Liquidity is strong: current ratio 372.3%, quick ratio 369.9%, and working capital of ¥6,833 million, indicating ample short-term solvency. Interest expense is only ¥5.9 million, and interest coverage of 83× underscores minimal financial risk. Asset turnover of 0.198 reflects a sizeable asset base relative to sales, typical of cash/investments and intangibles on balance sheets of software/IP companies. Equity ratio is shown as 0.0% in the data set, but this is an unreported metric; based on totals, the implied equity ratio is approximately 80.4% (¥12,903m/¥16,037m), indicating high solvency. The balance between current assets (¥9,342m) and current liabilities (¥2,509m) suggests significant liquidity headroom. Overall, the company exhibits low leverage, high liquidity, and strong interest coverage, providing resilience and optionality for investment.

Cash Flow Quality

Operating cash flow was ¥1,437 million versus net income of ¥655 million, yielding an OCF/NI of 2.19×, which indicates strong earnings quality and favorable working capital effects. Depreciation and amortization were ¥245 million, providing non-cash add-backs that support cash generation. Investing cash flow is reported as 0 in the data set (unreported), so we cannot ascertain capex or acquisition outflows and therefore cannot compute free cash flow; the reported FCF of 0 reflects missing investing data rather than true zero. Financing cash flow was an outflow of ¥854 million, which could reflect share buybacks, dividends to minorities, lease/debt repayments, or other financing activities; since DPS is reported as ¥0, buybacks or debt service are more likely, but specific components are not disclosed here. Cash and equivalents are shown as 0 (unreported), limiting assessment of cash buffer and net cash position. Working capital appears robust given the current ratio and low inventories (¥60 million), suggesting limited inventory risk and potential receivables-driven OCF. Overall, cash conversion looks strong in this period, but the absence of investing cash flow and cash balances constrains a full FCF and liquidity runway analysis.

Dividend Sustainability

The company reports DPS of ¥0.00 and a payout ratio of 0.0%, implying earnings retention for reinvestment or balance sheet strengthening. With OCF at ¥1,437 million and no disclosed investing cash flow, we cannot calculate true free cash flow; thus, FCF coverage of dividends cannot be assessed from the provided data. The capital structure is conservative and liquidity is ample, so capacity for future shareholder returns likely exists, but policy appears conservative at present. The ¥854 million financing outflow suggests capital allocation activity (potential buybacks or debt reduction) despite no cash dividend. Sustainability of any future dividends would hinge on maintaining positive OCF after capex and the stability of core operating margins rather than relying on non-operating gains. Given the strong OCF and low leverage, the balance sheet could support distributions if management elects to do so, but current policy indicates prioritization of growth and/or buybacks over cash dividends.

Risk Assessment

Business Risks:

• Subdued top-line growth (+0.3% YoY) indicating potential demand softness or project timing risk.
• Operating margin compression from rising SG&A/R&D, wage inflation, or AI compute costs.
• Competitive intensity in speech recognition/AI from global hyperscalers and domestic vendors, pressuring pricing and win rates.
• Dependence on large projects or public-sector procurement cycles, causing revenue lumpiness.
• Execution risk in transitioning to/expanding recurring or cloud-based revenue models.
• Technology obsolescence and the need for sustained R&D to keep accuracy/performance leadership.
• Cybersecurity and data privacy risks given handling of voice data.

Financial Risks:

• Earnings volatility due to reliance on non-operating gains to support net income in the period.
• Low asset turnover (0.198) reducing ROA/ROE unless margin expansion or growth improves.
• Potential working-capital swings tied to receivables collection in project-based sales.
• Limited visibility on capex/acquisitions due to unreported investing cash flows.
• Shareholder return uncertainty (no dividend; financing outflows may reflect buybacks, but not detailed).

Key Concerns:

• Operating income down 30.4% YoY versus flat revenue, signaling negative operating leverage.
• Net margin (20.6%) above operating margin (15.4%), implying non-operating items boosted earnings quality optics.
• Lack of disclosed investing CF and cash balances impedes robust FCF and liquidity buffer assessment.

Investment Implications

Key Takeaways:

• Revenue essentially flat at ¥3,175m (+0.3% YoY) with strong gross margin (75.2%) but weaker operating margin (~15.4%).
• Net income up 19.9% YoY to ¥655m due to non-operating support; underlying operating trend is softer.
• ROE modest at 5.08% given low leverage (1.24×) and low asset turnover (0.198×); upside requires growth or margin expansion.
• Liquidity and solvency are very strong (current ratio 372%, D/E 0.28×, interest coverage 83×).
• Cash conversion strong (OCF/NI 2.19×), but FCF unassessable due to unreported investing CF.

Metrics to Watch:

• Operating margin trend and SG&A/R&D growth versus revenue.
• Order intake/backlog and subscription/recurring revenue mix to gauge sustainable growth.
• Non-operating income components and their repeatability.
• OCF/NI ratio and receivables days to validate cash conversion.
• Capex and M&A outlays (investing CF) to assess FCF and capital allocation.
• Headcount and wage/compute cost trends impacting operating leverage.

Relative Positioning: Within TSE-listed software/AI peers, Advanced Media exhibits premium gross margins and a conservative balance sheet, but its current-period operating leverage is negative and ROE is modest; sustained competitive positioning will depend on re-accelerating revenue growth and stabilizing opex while maintaining product differentiation in speech AI.

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