Nextware (4814) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The cumulative results through Q3 reflected deteriorating profitability, with the operating loss widening amid declining revenue. Revenue was ¥20.5B (-5.8% YoY), while the operating loss was ¥1.5B, compared with a loss of ¥1.2B in the same period of the previous year, resulting in a wider loss. The quarterly net loss attributable to owners of the parent was also ¥1.5B, deteriorating from ¥1.4B in the same period of the previous year. The reduction in SG&A expenses failed to keep pace with the decline in revenue, and reduced fixed-cost absorption was the primary cause of the deterioration in earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥20.5B, representing a 5.8% YoY decline. By segment, the Solutions Business generated revenue of ¥16.2B (78.7% composition ratio, -4.3% YoY), while the Entertainment Business generated revenue of ¥4.6B (21.3% composition ratio, -11.0% YoY); both businesses experienced revenue declines.

【Profit and Loss】Gross profit was ¥4.8B (gross margin: 23.5%), down from 24.4% in the same period of the previous year, suggesting deterioration in project profitability. SG&A expenses were reduced by 2.7% YoY to ¥6.4B, but this was insufficient to absorb the decline in gross profit, causing the operating loss to widen to ¥1.5B. Non-operating income and expenses were immaterial, and ordinary loss remained almost at the same level as the operating loss. Since extraordinary loss was also immaterial at ¥0.02B in loss on disposal of fixed assets, the primary cause of the net loss was the operating deficit. In conclusion, the company recorded lower revenue and lower earnings, with the loss widening.

Segment Analysis

The Solutions Business reported revenue of ¥16.2B (-4.3% YoY) and a segment loss of ¥1.2B, narrowing from the ¥1.6B loss recorded in the same period of the previous year. The loss ratio also improved from negative 9.3% to negative 7.5%, indicating signs of improved profitability. Meanwhile, the Entertainment Business reported revenue of ¥4.6B (-11.0% YoY) and a segment loss of ¥0.3B, falling into the red from a profit of ¥0.3B in the same period of the previous year. Although the Entertainment Business represents a smaller proportion of revenue, its shift from profitability to a loss has been the primary cause of the deterioration in company-wide earnings. Lowering the break-even point of the larger Solutions Business and restoring profitability in the Entertainment Business will be key areas of focus going forward.

Key Financial Metrics

【Profitability】The operating margin was negative 7.4%, deteriorating from negative 5.6% in the same period of the previous year, while the net profit margin also deteriorated to negative 7.4% from negative 6.3%. The gross margin was 23.5%, down from 24.4% in the same period of the previous year.【Cash Quality】Extraordinary items consisted solely of a ¥0.02B loss on disposal of fixed assets, and the net loss was almost equal to the operating loss, indicating that earnings quality is dependent on recurring operating items.【Investment Efficiency】Annualized ROE was negative 18.8%. Although the equity ratio was high at 79.6%, capital efficiency declined due to the recorded loss.【Financial Soundness】Current assets of ¥7.9B versus current liabilities of ¥2.6B indicate ample liquidity. However, cash and deposits were ¥2.6B, a significant decrease from ¥4.5B in the previous year, making it important to monitor cash trends.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, cash trends can be inferred from changes in the balance sheet. Cash and deposits declined by ¥1.9B from ¥4.5B in the previous year to ¥2.6B, suggesting that the continued operating deficit is putting pressure on cash on hand. Accounts payable declined from ¥1.5B to ¥0.8B, and payments for purchases and outsourcing expenses are also considered to have contributed to cash outflows. Intangible fixed assets increased from ¥1.1B to ¥1.4B, indicating continued cash expenditures for development investment and other purposes. Total assets decreased from ¥13.4B to ¥15.5B, and it is necessary to closely monitor the trend in financial resources as total assets contract.

Quality of Earnings

The net loss of ¥1.5B was almost equal to the operating loss of ¥1.5B, indicating that deterioration in the profitability of the core business, a recurring operating item, was the primary cause of the loss. Both non-operating income and expenses were immaterial, and non-recurring income such as interest income and dividend income had a limited impact on earnings. Extraordinary loss was also limited to a ¥0.02B loss on disposal of fixed assets, meaning that distortion of earnings from temporary factors was limited. Comprehensive income was a ¥1.5B loss, almost equal to net income, with no divergence from net income attributable to valuation differences on other securities or similar items. Accordingly, the loss for the period can be interpreted as reflecting actual business conditions rather than technical factors related to accounting treatment.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥30.0B (-0.3% YoY), operating income of ¥0.3B, and ordinary income of ¥0.3B. The cumulative Q3 revenue progress rate was 68.4%, below the standard 75% level. Since the cumulative Q3 operating result was a ¥1.5B loss, achieving the full-year forecast will require approximately ¥1.8B in operating income in Q4 alone. As of the current quarter, no revisions have been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year forecast dividend is also ¥0 per share, indicating that the no-dividend policy remains in place. As the company recorded a cumulative net loss for the period, there is no profit available for calculating the payout ratio. In light of the year-on-year decline in cash and deposits, the continuation of the no-dividend policy can be viewed as conservative capital allocation that prioritizes capital preservation.

Risk Factors

1. Business-Specific Profitability Risk: Revenue in the Entertainment Business declined 11.0% YoY, and segment earnings fell from a ¥0.3B profit in the same period of the previous year to a ¥0.3B loss. Fluctuations in the profitability of this business have a significant impact on company-wide earnings.

2. Core Business Profitability Risk: Although the Solutions Business accounts for 78.7% of the revenue mix, it recorded a segment loss of ¥1.2B. While the loss narrowed from the same period of the previous year, a return to profitability in this business is a prerequisite for achieving the full-year performance forecast.

3. Earnings Forecast Achievement Risk: Against the full-year operating income forecast of ¥0.3B, the company recorded a cumulative Q3 operating loss of ¥1.5B, requiring a substantial improvement in profitability in Q4. The revenue progress rate was also 68.4%, below the standard level.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the company's operating margin and net profit margin were substantially below the industry median, placing the company in the lower tier of the industry.

Growth and Capital Efficiency

While most companies in the industry are experiencing revenue growth, the company recorded a revenue decline and is also underperforming its industry peers in terms of growth.

※Source: Compiled by the Company

Key Earnings Highlights

1. Although revenue in the Solutions Business declined, its segment loss narrowed from ¥1.6B in the same period of the previous year to ¥1.2B, indicating progress toward improved profitability. As this business accounts for nearly 80% of the revenue mix, progress toward profitability will have a significant impact on company-wide performance.

2. The Entertainment Business shifted from profitability in the same period of the previous year to a loss, making it a key factor affecting the likelihood of achieving the full-year performance forecast and earnings volatility.

3. Cash and deposits declined by ¥1.9B YoY. Although the equity ratio remained high at 79.6%, the trend in cash on hand amid continued losses requires monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥61–¥64 at ±1% for the cost of equity, and ¥62–¥63 at ±0.1 for ω.

Notes:

• Due to tax burden, acquisition-related expenses, non-controlling interests, and other factors, net income is substantially compressed relative to operating income (net income ÷ operating income: 33%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used; there is a timing difference from the full-year forecast.
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, consulting with a professional as necessary.

---End of Report---