Allied Architects,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.21B
• Operating Income: ¥-168M
• Net Income: ¥-473M
• EPS: ¥-39.04

Income Statement

Balance Sheet

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

Verdict: FY2025 Q3 was weak, with a revenue decline and operating loss driven by SG&A exceeding gross profit, resulting in a deep net loss and negative ROE. Revenue was 22.15, down 14.0% YoY, showing demand softness and/or client budget tightening. Gross profit was 17.62, implying a very high gross margin of 79.6%, but SG&A of 21.22 (95.8% of revenue) pushed operating income to -1.68. Operating margin printed at -7.6% and ordinary income was -1.55 after a -0.47 non-operating balance (0.06 income, 0.53 expenses). Net income was -5.54, translating to a net margin of -25.0% and EPS of -39.04 yen. DuPont ROE was -30.8%, driven by a -25.0% net margin, modest asset turnover of 0.774, and leverage of 1.59x. The spread between gross margin (79.6%) and operating margin (-7.6%) highlights heavy fixed cost absorption issues. Margin expansion/compression vs prior year cannot be quantified due to missing YoY margin data, but current operating margin equates to -758 bps and net margin to -2,502 bps on the quarter’s revenue base. Earnings quality assessment is constrained because operating cash flow was not disclosed; we cannot confirm whether the loss is cash-consistent. Liquidity remains a bright spot: current ratio is 310.8% with cash of 12.74 versus current liabilities of 6.74, offering runway to execute restructuring. Solvency is acceptable with liabilities-to-equity at 0.59x and long-term loans at 3.17, though interest coverage is a clear red flag at -33.8x, reflecting the operating loss. Retained earnings are negative (-2.49), indicating accumulated deficits, and the effective tax rate is distorted at -13.3% given the loss. ROIC is reported at -20.0%, signaling value destruction absent swift profitability improvements. With revenue contracting and costs sticky, near-term focus needs to be on SG&A right-sizing and revenue stabilization to return to breakeven. Forward-looking, the company likely must rebalance cost structure, prioritize higher-ROI offerings, and preserve cash until demand normalizes; absent a revenue rebound, further cost actions appear necessary.

Profitability Analysis

ROE decomposition (DuPont): ROE (-30.8%) = Net Profit Margin (-25.0%) × Asset Turnover (0.774) × Financial Leverage (1.59x). The largest driver is the sharp deterioration in net profit margin, as operating losses and non-operating expenses overwhelmed a strong gross margin. Business reason: SG&A at 21.22 (95.8% of revenue) outstripped gross profit (17.62), suggesting fixed personnel/marketing/product development costs and limited variable cost flexibility amid softer top line (-14% YoY). Asset turnover of 0.774 is middling for a digital/marketing services model and reflects subdued revenue against a relatively stable asset base (cash 12.74; intangibles 3.70). Financial leverage at 1.59x is moderate and not the main swing factor. Sustainability: Margin pressure appears cyclical/operational rather than structural on the gross margin line, but recurring SG&A at current levels is unsustainable without revenue recovery; absent cost cuts, losses could persist. Concerning trend flags: SG&A growth versus revenue cannot be measured YoY due to missing prior data, but the SG&A-to-sales ratio at ~96% is excessive; interest coverage at -33.8x is also a material risk.

Growth Assessment

Top line contracted 14.0% YoY to 22.15, indicating weakened demand or client budget reductions. Gross margin resilience at 79.6% suggests the core service mix/pricing retained value, but operating leverage turned negative due to high SG&A. Ordinary loss (-1.55) reflected both operating loss and a -0.47 non-operating drag. Without segment disclosure, the revenue decline’s breadth is unclear; concentration risk cannot be assessed. Outlook hinges on revenue stabilization and cost rightsizing; if revenue remains at current run-rate, breakeven would likely require a meaningful SG&A reduction. Near-term catalysts would include new product wins, price/mix improvement, and utilization gains; risks include continued client budget caution. Given a strong liquidity position, the company has some runway to invest selectively in growth initiatives, but must be disciplined to avoid further ROIC erosion.

Financial Health

Liquidity is strong: current ratio 310.8% and quick ratio 310.8%, with cash of 12.74 comfortably covering current liabilities of 6.74 (cash/current liabilities ≈ 1.89x). No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); liabilities-to-equity stands at 0.59x. Maturity mismatch risk appears low: current assets (20.96) exceed current liabilities (6.74) by 14.21 of working capital. Long-term loans are 3.17; total liabilities are 10.61. Interest coverage is a concern at -33.79x due to operating losses, indicating vulnerability if rates rise or losses persist. Off-balance sheet obligations were not disclosed; we cannot assess lease commitments or guarantees under JGAAP. Equity remains positive at 17.99, but retained earnings are negative (-2.49), limiting capital policy flexibility.

Cash Flow Quality

Operating cash flow is unreported, so OCF/NI cannot be calculated and earnings quality cannot be validated. With negative operating income and net loss, cash earnings are likely weak absent favorable working capital movements. Free cash flow is unreported; hence, coverage of capex and any dividends cannot be assessed. Working capital position is ample (14.21), and cash is sizable, mitigating immediate liquidity stress. No signs of working capital manipulation can be inferred from the limited data; receivables are 6.45, but DSO cannot be reliably analyzed without period granularity.

Dividend Sustainability

Dividend data are unreported; payout ratio and FCF coverage cannot be calculated. Given negative net income (-5.54) and accumulated deficits (retained earnings -2.49), distribution capacity appears constrained under typical JGAAP profit distribution norms. With ROIC at -20.0% and losses ongoing, capital allocation should prioritize stabilizing profitability and preserving cash; reinstatement/initiation of dividends would likely require a clear return to positive earnings and FCF.

Risk Assessment

Business Risks:

• Revenue decline of 14.0% YoY suggests demand softness/client budget cuts, risking further deleverage.
• High SG&A intensity (~96% of revenue) causing operating losses; execution risk around cost reductions.
• Potential client concentration or sector exposure risk (not disclosed) common in digital marketing/services.
• Product/platform dependency risk (industry: changes in social media algorithms/privacy rules can impact campaign effectiveness and demand).

Financial Risks:

• Negative interest coverage (-33.8x) despite moderate leverage, raising resilience concerns if losses persist.
• Retained earnings deficit (-2.49) limits financial policy flexibility.
• ROIC at -20.0% indicates value erosion and increases refinancing/cost of capital risk over time.
• Tax distortion (effective tax rate -13.3%) amid losses may continue to create P/L volatility.

Key Concerns:

• Sustained operating losses with SG&A exceeding gross profit.
• Dependence on non-operating items remains a drag this quarter (-0.47).
• Limited visibility due to missing cash flow and detailed SG&A breakdown data.
• Need for swift cost rightsizing to restore breakeven.

Investment Implications

Key Takeaways:

• Top-line down 14% YoY to 22.15; operating loss of -1.68 with operating margin -7.6%.
• Gross margin is high at 79.6%, but SG&A at 21.22 (96% of sales) is the core issue.
• Net loss of -5.54 (net margin -25.0%); ROE -30.8% and ROIC -20.0%.
• Liquidity strong: current ratio 311%, cash 12.74 vs current liabilities 6.74.
• Leverage moderate (liabilities/equity 0.59x), but interest coverage severely negative.
• Retained earnings negative (-2.49), constraining dividends and buybacks.

Metrics to Watch:

• Revenue trajectory and backlog/pipeline indicators (to assess stabilization).
• SG&A run-rate and cost actions; SG&A-to-sales ratio progress toward sub-70%.
• Operating margin and break-even revenue level.
• Operating cash flow and free cash flow once disclosed.
• Interest coverage improvement and debt service profile.
• ROIC progression back toward >5% as a first milestone.

Relative Positioning: Within Japanese small-cap digital/marketing services peers, the company exhibits above-average gross margins but materially weaker operating margins due to elevated SG&A. Liquidity is stronger than average, leverage is moderate, but profitability metrics (ROE/ROIC) currently lag peers.

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