Agile Media Network Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥323M
• Operating Income: ¥-212M
• Net Income: ¥-250M
• EPS: ¥-5.14

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 deep operating loss and negative net margin despite ample liquidity. Revenue came in at 3.23 (100M JPY), down 3.5% YoY, indicating soft topline momentum. Gross profit was 0.43, translating to a low gross margin of 13.3%, which is insufficient to cover the fixed cost base. SG&A was 2.91, roughly 6.8x gross profit, driving operating income to -2.12 and ordinary income to -2.24. Net income was -1.59, implying a net margin of -49.2% and a calculated ROE of -32.2%. Operating margin stands at -65.6% and ordinary margin at -69.3%, highlighting significant operating deleverage. Interest expense is minimal at 0.02, but interest coverage is still deeply negative at -103.47x due to the operating loss. Liquidity appears strong: current ratio is 372.2% and quick ratio is 330.2%, supported by cash and deposits of 1.92 versus current liabilities of 1.11. Leverage is moderate with D/E of 0.45x and long-term loans of 1.11, limiting immediate balance sheet stress. However, retained earnings are negative at -5.12 and ROIC is severely negative at -51.3%, signaling destruction of capital at current economics. We cannot assess operating cash flow quality because cash flow statements were unreported; this is a key limitation. Without prior-year margin details, we cannot quantify basis-point expansion/compression; the level data, however, show severe margin compression relative to a sustainable model. Working capital is not a stress point (AR 0.77, inventories 0.47, AP 0.31), but profitability must recover quickly to prevent equity erosion. Forward-looking, the company likely needs decisive cost restructuring, gross margin improvement, and monetization initiatives to narrow losses. Given negative earnings and unreported OCF, dividend capacity appears effectively nil near term.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-49.2%) × 0.452 × 1.45 ≈ -32.2%. The dominant driver of the negative ROE is the very weak net profit margin (-49.2%). Asset turnover at 0.452x is low, indicating limited revenue generation relative to the asset base. Financial leverage of 1.45x is moderate and does not amplify returns meaningfully. The largest change component cannot be quantified YoY due to limited prior data, but current-period loss clearly indicates margin deterioration as the main issue. Business reason: gross margin (13.3%) is too thin to absorb SG&A of 2.91, leading to heavy operating losses; the cost base appears misaligned with revenue scale. This margin deficit seems structural rather than one-time, absent evidence of extraordinary items. Sustainability: without cost-down or mix improvement, the current net margin trajectory is unsustainable. A concerning trend is SG&A far exceeding gross profit (2.91 vs 0.43), implying negative operating leverage; if SG&A is sticky, further revenue softness would worsen losses.

Growth Assessment

Revenue declined 3.5% YoY to 3.23, signaling demand softness or client budget pressure. Gross margin is only 13.3%, suggesting either pricing pressure, high pass-through costs, or unfavorable mix. Operating margin at -65.6% indicates the revenue base cannot support the current SG&A run-rate. Profit quality is weak given the scale of losses; we lack evidence of one-time distortions. Outlook hinges on cost restructuring, contract repricing, and product mix shift to higher-margin services. Without OCF data, it is unclear whether collections or prepayments cushion the P&L losses. Near-term growth is likely constrained; priority should be stabilizing gross margin and reducing fixed costs to approach breakeven.

Financial Health

Liquidity is strong: current ratio 372.2% and quick ratio 330.2%, with cash and deposits of 1.92 versus current liabilities of 1.11. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.45x, conservative. Maturity profile: short-term loans are minimal at 0.01, while long-term loans are 1.11; near-term refinancing risk is low given cash on hand and small ST debt. Working capital appears comfortable: current assets (4.12) exceed current liabilities (1.11) by 3.02. Equity is 4.93, providing a buffer, but retained earnings are negative (-5.12), reflecting accumulated losses. Off-balance sheet obligations are not reported; no explicit commitments identified from provided data. The key solvency risk is not leverage but ongoing losses eroding equity and potential covenant pressure tied to the 1.11 in long-term loans.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and FCF cannot be assessed; this limits earnings quality analysis. Given the large net loss (-1.59) and minimal interest expense, cash burn likely depends on working capital movements and any noncash charges (depreciation unreported). Balance sheet liquidity (cash 1.92) versus operating scale (revenue 3.23) suggests some runway, but sustained losses would deplete cash unless offset by positive working capital or financing. No clear signs of working capital manipulation can be inferred: AR 0.77 and inventories 0.47 vs AP 0.31 appear proportionate to revenue and cost of sales, but period-end timing effects are unknown. Without capex data, FCF sustainability relative to any dividend or growth investments cannot be judged.

Dividend Sustainability

Dividends are unreported and likely absent given negative net income and negative retained earnings. Payout ratio and FCF coverage are not calculable due to missing cash flow data. Policy-wise, preserving liquidity to fund operations and restructuring is the prudent stance; reinstatement of dividends would require a clear path to sustained profitability and positive OCF. Near-term dividend capacity appears effectively zero.

Risk Assessment

Business Risks:

• Demand softness and potential client budget cuts reflected in -3.5% YoY revenue decline
• Structurally low gross margin (13.3%) limiting operating leverage
• Execution risk around cost restructuring to align SG&A with revenue scale
• Competitive pricing pressure in digital/marketing services leading to thin margins

Financial Risks:

• Sustained operating losses driving ROE -32.2% and ROIC -51.3%
• Interest coverage deeply negative (-103.47x), indicating lack of earnings capacity to service debt from operations
• Potential loan covenant pressure tied to long-term loans (1.11) if losses persist
• Equity erosion risk given negative retained earnings (-5.12)

Key Concerns:

• Very weak net margin (-49.2%) and operating margin (-65.6%)
• SG&A (2.91) far above gross profit (0.43), requiring significant restructuring
• Lack of OCF/FCF disclosure obscures cash burn dynamics
• Dependence on noncurrent investment securities (1.44) for potential liquidity is uncertain

Investment Implications

Key Takeaways:

• Quarter characterized by deep operating loss despite strong liquidity
• Topline decline (-3.5% YoY) and 13.3% gross margin underscore revenue quality issues
• ROE -32.2% predominantly driven by negative net margin; leverage is not the cause
• Interest coverage highly negative; while interest cost is small, earnings capacity is the constraint
• Balance sheet can absorb near-term losses, but persistent deficits will erode equity and flexibility

Metrics to Watch:

• Quarterly gross margin progression (basis-point improvement)
• SG&A run-rate and cost reduction initiatives
• Operating cash flow and working capital trends (AR days, AP days)
• Revenue growth re-acceleration and backlog/new bookings
• Covenant headroom and refinancing plans for long-term loans

Relative Positioning: Compared to profitable small-cap peers in marketing/communications, the company is disadvantaged on profitability (negative margins, ROIC -51.3%) but comparatively stronger on liquidity (current ratio >3x) and moderate leverage (D/E 0.45x); strategic cost realignment and margin repair are prerequisites to close the gap.

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