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

Allied Architects, Inc. (TSE:6081) reported FY2025 Q3 consolidated results under JGAAP showing a topline contraction and continued operating losses, offset by solid liquidity and a still-adequate equity cushion. Revenue was ¥2,215m, down 14.0% YoY, indicating ongoing headwinds in demand or project flow within its marketing/solution lines. Despite the decline, reported gross profit of ¥1,762m implies a very high gross margin of 79.6%, consistent with a service-heavy, asset-light model; however, the disclosed cost of sales of ¥814m is inconsistent with the gross profit figure, and the margin calculation appears to rely on the gross profit value. Operating income remained a loss at ¥-168m (flat YoY), suggesting mixed cost flexibility and limited operating leverage in the quarter. Ordinary loss was ¥-155m, slightly better than operating loss, indicating modest non-operating income offsetting interest expense of ¥5m. Net loss widened to ¥-554m, with taxes of ¥55m recorded despite negative pre-tax income, likely reflecting items such as local taxes or valuation allowance adjustments under JGAAP. DuPont analysis points to an ROE of -30.8%, driven by a -25.0% net margin, asset turnover of 0.774x, and financial leverage of 1.59x. Liquidity appears strong with a current ratio of 3.15x and working capital of ¥2,048m, affording runway for operational adjustments. The capital structure looks moderate based on total liabilities/equity of 0.86x, and by our computation equity ratio approximates 63% (equity ¥1,799m / assets ¥2,860m), although the disclosed equity ratio is listed as 0.0% and total current assets exceed total assets—both clear data inconsistencies. Cash flow statements were not disclosed (zeros indicate unreported), limiting assessment of earnings-to-cash conversion and capex discipline. No dividend was declared (DPS ¥0), appropriate given losses and the need to prioritize stabilization. Interest coverage based on operating income is -33.8x, underlining near-term earnings pressure, though absolute interest burden remains small at ~¥5m. The combination of high gross margin and negative operating income points to elevated SG&A and the need to realign fixed costs or reignite revenue growth to restore breakeven. Overall, the quarter underscores revenue softness and continued losses, but the balance sheet provides liquidity to execute on cost actions and commercial initiatives. Data quality limitations (notably cost of sales vs. gross profit, equity ratio, asset totals, and missing cash flow disclosure) temper confidence in granular interpretation; conclusions focus on the consistent, non-zero data provided.

Profitability Analysis

ROE_decomposition: ROE -30.79% = Net margin (-25.01%) × Asset turnover (0.774x) × Financial leverage (1.59x). The primary drag is the negative net margin, with moderate asset efficiency and leverage. margin_quality: Gross margin is very high at 79.6% (¥1,762m/¥2,215m), consistent with a service/platform model; however, the disclosed cost of sales (¥814m) conflicts with this margin. Operating margin is -7.6% (¥-168m/¥2,215m). Net margin is -25.0% due to operating loss plus tax/extraordinary items. operating_leverage: Revenue declined 14% YoY while operating loss was flat YoY, implying some cost containment but not enough variable cost relief to offset the revenue drop. Fixed-cost intensity in SG&A appears high, keeping breakeven out of reach at current volumes.

Growth Assessment

revenue_sustainability: Topline of ¥2,215m fell 14.0% YoY, signaling sustained demand pressure or reduced client spend. Asset turnover at 0.774x is consistent with the reported scale but indicates underutilization versus profitable peers. profit_quality: High gross margin suggests pricing power or value-added services, but the gap to operating profitability indicates heavy SG&A and limited scale benefits. Recorded taxes despite losses point to below-the-line factors affecting net results. outlook: Near-term outlook hinges on stabilizing revenues and executing SG&A right-sizing. A modest recovery in project wins or subscription-like revenues could quickly improve operating income given high gross margins, but absent growth, further cost action appears necessary.

Financial Health

liquidity: Current assets ¥3,001.8m vs. current liabilities ¥953.6m yields a current ratio of 3.15x and working capital of ¥2,048m. Quick ratio equals current ratio due to no inventory disclosure. These indicate strong short-term liquidity. solvency: Total liabilities ¥1,552.7m vs. equity ¥1,799.0m yields TL/TE of 0.86x. Interest expense is low at ~¥5m, limiting cash interest risk despite negative EBIT. capital_structure: Using reported totals, equity ratio recalculates to roughly 62.9% (¥1,799m/¥2,860m). Note that the reported equity ratio (0.0%) and the fact that current assets exceed total assets indicate data inconsistencies; the recomputed equity ratio better reflects solvency using non-zero figures.

Cash Flow Quality

earnings_quality: Operating, investing, and financing cash flows were not disclosed. As such, we cannot verify earnings-to-cash conversion, the magnitude of working capital swings, or capex needs. Given losses, OCF may be pressured, but data is insufficient for quantification. FCF_analysis: Free cash flow cannot be computed without OCF and capex data. The high gross margin suggests potential for cash generation once operating losses narrow. working_capital: Working capital is sizable at ¥2,048m, providing liquidity flexibility. Without cash flow detail, the duration and cash conversion of receivables/payables cannot be assessed.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 and payout ratio is 0%, consistent with negative earnings (EPS -¥39.04). With ongoing losses, distributions would not be sustainable from earnings. FCF_coverage: FCF coverage ratio is not meaningful due to unreported OCF and capex. In the absence of positive, visible FCF, dividend capacity remains constrained. policy_outlook: Given current losses and the need to prioritize balance sheet resilience and investment in recovery, maintaining a conservative stance on shareholder returns appears likely until profitability and cash generation improve.

Risk Assessment

Business Risks:

• Sustained revenue decline (-14% YoY) indicating demand softness or competitive pressure
• High SG&A burden limiting operating leverage and delaying breakeven
• Potential client budget cyclicality in digital marketing/services
• Execution risk in cost restructuring and sales pipeline recovery
• Pricing pressure and competitive intensity in marketing technology/services

Financial Risks:

• Negative operating income and limited interest coverage (-33.8x) despite small absolute interest
• Uncertainty around cash generation due to undisclosed cash flow statements
• Tax expense recorded amid losses, adding volatility to net income
• Data inconsistencies (e.g., cost of sales vs. gross profit; current assets vs. total assets) complicate precise ratio analysis

Key Concerns:

• Restoring operating profitability at current revenue run-rate
• Visibility into operating and free cash flow to assess runway
• Resolving reported data inconsistencies to improve transparency

Investment Implications

Key Takeaways:

• Revenue contracted 14% YoY to ¥2,215m; operating loss remained ¥-168m.
• Gross margin is high at 79.6%, but SG&A keeps operating results negative.
• Ordinary loss (¥-155m) slightly better than operating loss due to non-operating items; interest expense is modest (~¥5m).
• Liquidity is strong (current ratio 3.15x; working capital ¥2,048m), supporting near-term operations.
• Leverage is moderate (TL/TE 0.86x); recalculated equity ratio ~63%.
• Cash flow data is not disclosed; dividend remains suspended (DPS ¥0).
• Data inconsistencies warrant caution in interpreting certain line items.

Metrics to Watch:

• Quarterly revenue growth and order backlog/pipeline indicators
• Operating expense run-rate and progress toward breakeven EBIT
• Cash conversion (OCF), DSO/DPO trends once disclosed
• Retention/expansion rates in recurring or subscription-like revenues
• Non-operating items and tax impacts affecting net margin

Relative Positioning: Niche digital marketing/services provider with high gross margins but subscale profitability; balance sheet liquidity offers runway versus some peers, yet revenue headwinds and cost intensity weigh on near-term competitiveness.

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