Nyle Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.90B
• Operating Income: ¥-165M
• Net Income: ¥-606M
• EPS: ¥-22.56

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

Verdict: FY2025 Q3 was weak, with solid topline growth failing to translate into profitability amid an elevated SG&A cost base and high financial leverage. Revenue grew 24.8% YoY to 48.99, while gross profit reached 16.07, implying a gross margin of 32.8%. However, SG&A of 21.99 exceeded gross profit by 5.92, driving operating income to -1.65 (operating margin -3.4%). Ordinary income was -1.91, reflecting non-operating expenses of 0.14 (mainly interest expense of 0.13) against minimal non-operating income. Net income was -1.92 (net margin -3.9%), with EPS of -22.56 JPY and total comprehensive income equal to net loss. Asset efficiency was reasonable with asset turnover at 1.523x, but high leverage (financial leverage 8.0x, D/E 7.0x) magnified the small net loss into a large negative ROE of -47.8%. Gross margin stands at 32.8%, operating margin at -3.4%, ordinary margin at -3.9%, and net margin at -3.9%; lack of prior-period margin disclosure prevents calculation of basis-point expansion/compression. Earnings quality cannot be assessed robustly as operating cash flow is unreported; this is a key data gap given the loss and leverage. Liquidity is adequate on a current ratio basis (168%), supported by cash of 13.76, but solvency metrics are strained with negative retained earnings (-2.21) and poor interest coverage (-12.3x). Working capital is positive at 10.85, and the short-term loan balance (4.00) appears covered by cash, mitigating near-term liquidity pressure. That said, the capital structure relies heavily on debt (long-term loans 12.06), and refinancing/interest-rate risks are rising if losses persist. Forward-looking, the path to breakeven hinges on scaling revenue further and/or materially reducing SG&A intensity; even modest margin improvements could flip operating loss to profit given current revenue scale. Monitoring interest burden relative to operating performance is critical, as further rate or spread increases would weigh on ordinary income. With ROIC at -26.1%, current returns are well below any cost-of-capital benchmark, highlighting urgency for profitability actions. Lack of dividend and cash flow disclosure constrains visibility into shareholder returns and funding capacity. Overall, the quarter underscores a growth-overspend trade-off that must normalize to stabilize equity and reduce leverage risk.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-3.9%) × 1.523 × 8.0 ≈ -47.8%. The dominant driver of negative ROE is the negative net profit margin, as asset turnover is reasonable and leverage is high. Business drivers: SG&A (21.99) exceeds gross profit (16.07), creating operating deleverage that pushes operating and net margins negative; interest expense (0.13) further depresses ordinary profit. Sustainability: The negative margin is not structurally permanent but requires either revenue scaling to dilute fixed costs or SG&A discipline; without these, losses could persist. Warning signs: SG&A outpaced gross profit (absolute level higher than GP), indicating cost growth exceeding revenue/GP growth; this is a concerning trend for operating leverage until corrected. ROIC of -26.1% confirms economic value destruction at current returns.

Growth Assessment

Revenue growth of +24.8% YoY to 48.99 is strong and suggests demand traction. However, profitability lagged as gross margin (32.8%) and SG&A intensity (SG&A/Revenue ≈ 44.9%) yielded operating losses. With operating margin at -3.4%, incremental revenue currently does not cover the fixed/semifixed cost base. The outlook hinges on improving conversion of gross profit to operating income (lower SG&A ratio) and maintaining gross margins; even a ~400–500 bps improvement in gross-to-SG&A spread could move operating income toward breakeven at current scale. Non-operating results offer little buffer given low non-operating income and recurring interest costs. Absent cash flow data, sustainability of growth spending is unclear, but cash on hand (13.76) offers some runway. Near-term catalysts would include evidence of SG&A normalization, pricing/mix supporting gross margin, and stabilization of interest expense.

Financial Health

Liquidity: Current ratio 168% and quick ratio 168% indicate adequate near-term liquidity; cash and deposits of 13.76 comfortably exceed short-term loans of 4.00. Working capital is positive at 10.85, reducing maturity mismatch risk on the current portion. Solvency: Debt-to-equity is high at 7.0x (warning threshold >2.0), and interest coverage is deeply negative (-12.3x), indicating elevated solvency risk if losses persist. Capital structure: Long-term loans of 12.06 form the majority of interest-bearing debt, suggesting refinancing risk over the medium term, especially with negative retained earnings (-2.21) and modest total equity (4.02). No off-balance sheet obligations are disclosed in the provided data. Explicit warning: D/E > 2.0 and negative interest coverage present material financial risk despite acceptable current liquidity.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; this is a critical limitation for evaluating earnings quality. With operating and net losses, cash burn is likely, but the magnitude and working-capital contribution are unknown. Free cash flow and capex are unreported, preventing assessment of sustainability versus any dividend or growth investments. No clear signs of working capital manipulation can be inferred due to missing AR, inventory, and OCF details.

Dividend Sustainability

Dividend data (DPS, payout, dividends paid) are unreported. Given negative net income and negative retained earnings (-2.21), distributable capacity appears constrained under JGAAP. Without OCF/FCF data, coverage cannot be evaluated. Policy outlook is unclear from disclosures; maintaining or initiating dividends would likely require a return to profitability and positive free cash flow.

Risk Assessment

Business Risks:

• Profitability risk: SG&A exceeds gross profit, causing operating losses.
• Execution risk: Need to scale revenue and/or reduce cost intensity to reach breakeven.
• Margin risk: Gross margin at 32.8% may be sensitive to pricing/mix and input costs.

Financial Risks:

• High leverage: D/E 7.0x with long-term loans 12.06 and short-term loans 4.00.
• Interest burden: Interest coverage -12.3x; further rate increases or spread widening would pressure ordinary income.
• Equity erosion: Negative retained earnings and low equity base (4.02) heighten covenant/refinancing risk.
• Liquidity dependence: Limited visibility on OCF; liquidity relies on existing cash (13.76) and debt facilities.

Key Concerns:

• ROE -47.8% and ROIC -26.1% indicate significant value destruction.
• Non-operating buffer minimal (non-op income 0.02 vs expenses 0.14).
• Data gaps: No OCF/FCF, capex, or segment details, limiting forward cash runway analysis.

Investment Implications

Key Takeaways:

• Strong revenue growth (+24.8% YoY) but negative operating leverage produced a -3.4% operating margin.
• High leverage (D/E 7.0x) and negative interest coverage (-12.3x) are the primary financial stress points.
• Negative ROE (-47.8%) is driven by margin losses amplified by leverage; asset turnover (1.523x) is acceptable.
• Cash position (13.76) and positive working capital (10.85) support near-term liquidity despite losses.
• Restoring a positive gross profit-to-SG&A spread is the most direct path to breakeven.

Metrics to Watch:

• SG&A/Revenue ratio (currently ~44.9%).
• Gross margin trend (currently 32.8%).
• Operating margin progression toward breakeven (-3.4% now).
• Operating cash flow and FCF once disclosed.
• Interest expense run-rate and covenant headroom.
• Debt maturity profile and refinancing terms.

Relative Positioning: Within small-cap growth profiles, the company shows above-average topline growth but below-average profitability and highly leveraged capital structure; near-term positioning hinges on rapid operating efficiency gains to offset financing headwinds.

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