Advance Create (8798) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The most important point in the current earnings results is that the operating loss and net loss narrowed significantly from the same period of the previous year, while the improvement was led by reductions in selling, general and administrative expenses, and the Company has fallen into a negative net worth position. Revenue was ¥48.55B (+0.4% YoY), the operating loss was ¥2.71B (versus a loss of ¥6.99B in the same period of the previous year), the ordinary loss was ¥3.40B (versus a loss of ¥8.59B in the same period of the previous year), and the quarterly net loss attributable to owners of the parent was ¥7.68B (versus a loss of ¥14.05B in the same period of the previous year). While revenue growth was minimal, SG&A expenses declined 12.4% YoY, which was the primary driver of the improvement in earnings, whereas the gross margin actually declined to 74.4% from 77.3% in the same period of the previous year. In addition, the Company recorded extraordinary losses of ¥5.33B, including an impairment loss of ¥2.06B in the Insurance Agency Business. Net assets deteriorated from ¥0.449B in the same period of the previous year to negative ¥2.76B (equity ratio of negative 3.4%), resulting in negative net worth.

Factors Affecting Earnings

【Revenue】Revenue was ¥48.55B, essentially flat at +0.4% YoY. By segment, the Insurance Agency Business (67.5% of total revenue) increased 9.4% YoY to ¥32.77B, while the Reinsurance Business rose 3.1% YoY to ¥7.90B. Conversely, the Media Business declined 71.4% YoY to ¥1.98B, and the ASP Business declined 1.4% YoY to ¥2.21B. The Media Rep Business expanded sharply by 135.5% YoY to ¥3.70B, but its contribution to overall revenue growth was limited.

【Profit and Loss】The operating loss was ¥2.71B, improving by ¥4.28B from the ¥6.99B loss in the same period of the previous year. However, the gross margin declined 293bp to 74.4%, indicating that fixed-cost reductions resulting from a 12.4% decline in SG&A expenses, rather than revenue growth, were the primary driver of the improvement. Losses in the Insurance Agency Business narrowed substantially to ¥3.37B from ¥9.74B in the same period of the previous year, leading the overall improvement, while the Media Rep Business recorded a wider loss of ¥0.85B despite higher revenue. The ordinary loss was ¥3.40B, including an interest expense burden of ¥0.83B. The Company also recorded extraordinary losses of ¥5.33B, including an impairment loss of ¥2.06B in the Insurance Agency Business, resulting in a net loss of ¥7.68B. Although earnings improved while revenue remained broadly flat, this was a cost-driven reduction in the loss amid limited revenue growth factors. In substance, the results represent higher revenue and a narrower loss that are close to a decline in revenue in terms of underlying quality.

Segment Analysis

The ASP Business made the largest contribution to operating income, maintaining high profitability with revenue of ¥2.21B, operating income of ¥0.76B, and an operating margin of 34.2%, although it accounted for only 4.6% of consolidated revenue. The core Insurance Agency Business (67.5% of total revenue) generated revenue of ¥32.77B (+9.4% YoY) and an operating loss of ¥3.37B, a 65.4% reduction from the ¥9.74B loss in the same period of the previous year, resulting in a still-negative margin of -10.3%. The Reinsurance Business recorded revenue of ¥7.90B (+3.1% YoY), operating income of ¥0.36B (-25.6% YoY), and a margin of 4.5%. The Media Rep Business generated revenue of ¥3.70B (+135.5% YoY), but recorded an operating loss of ¥0.85B, a 218.4% increase from the same period of the previous year, resulting in a margin of -23.1%. The Media Business posted revenue of ¥1.98B (-71.4% YoY), operating income of ¥0.22B (-83.7% YoY), and a margin of 11.1%. The loss-making nature of the Insurance Agency Business, which accounts for two-thirds of consolidated revenue, and the widening losses in the Media Rep Business despite higher revenue are widening the profitability gap among businesses.

Key Financial Indicators

【Profitability】The operating margin improved 887bp to -5.6% from -14.5% in the same period of the previous year, but remained in negative territory. The gross margin was 74.4%, down 293bp from 77.3% in the same period of the previous year, while the SG&A ratio declined substantially to 80.0% from 91.8%, which was the primary driver of the improvement in operating earnings. 【Cash Flow Quality】Extraordinary losses of ¥5.33B, including an impairment loss of ¥2.06B, exceeded extraordinary gains of ¥1.12B, resulting in a net loss from nonrecurring items of ¥4.21B and contributing to the wider net loss. 【Investment Efficiency】Because net assets are negative, ROE and ROIC are difficult to interpret economically due to abnormal denominator values. Importance should instead be placed on the fact that the business continues to operate at a loss in terms of invested capital efficiency. 【Financial Soundness】The equity ratio was negative 3.4%, indicating negative net worth. Cash and deposits were ¥24.69B, down 53.8% from the same period of the previous year. Short-term borrowings of ¥46.89B account for the majority of interest-bearing debt, making short-term funding and refinancing a key financial focus.

Cash Flow Analysis

Because individual data from the cash flow statement were not included in the disclosed information, funding trends can be assessed based on changes in the balance sheet. Cash and deposits were ¥24.69B, a decline of ¥28.70B from ¥53.4B in the same period of the previous year, representing a 53.8% contraction. Meanwhile, accounts receivable and notes receivable increased to ¥30.47B (+¥3.80B YoY, +14.2%), suggesting that part of the funds remained tied up in receivables. Accounts payable and notes payable also increased to ¥1.86B (+¥1.12B YoY, +149.1%), potentially mitigating some cash outflows through adjustments to payment terms. Retained earnings expanded to negative ¥20.36B in conjunction with the recognition of the ¥7.68B net loss, indicating that the accumulation of internally generated funds has not progressed. Short-term borrowings reached ¥46.89B, approximately 1.9 times cash and deposits, meaning that near-term cash management depends on refinancing and the progress of receivables collection.

Quality of Earnings

The improvement in earnings during the current period resulted from reductions in operating expenses and cannot readily be characterized as an improvement in earning power driven by revenue growth. Non-operating income was ¥0.62B, including a foreign exchange gain of ¥0.22B, equivalent to only 1.3% of revenue, indicating a low dependence on non-operating income. On the other hand, non-operating expenses were ¥1.31B, including interest expenses of ¥0.83B, exceeding non-operating income and weighing on ordinary earnings. Of the ¥5.33B in extraordinary losses, ¥2.06B was an impairment loss in the Insurance Agency Business due to declining profitability. Although nonrecurring, this item reflects the weakness of the outlook for future cash flows from the core business. Extraordinary gains of ¥1.12B included compensation income of ¥0.70B, but were insufficient to offset extraordinary losses, and a substantial portion of the ¥7.68B net loss was amplified by temporary factors. Comprehensive income was negative ¥7.69B, nearly the same level as the net loss, indicating only a minor divergence from net income due to valuation differences on securities and other items.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥71.54B (+3.4% YoY), operating income of ¥4.23B, ordinary income of ¥3.19B, and a net loss attributable to owners of the parent of ¥3.91B. The revenue progress rate for the Q3 cumulative period was 67.9%, 7.1pt below the standard 75% progress rate. Since cumulative Q3 operating income was negative ¥2.71B, achieving the full-year forecast requires standalone Q4 operating income of ¥6.94B, equivalent to a margin of 30.2%. Regarding net income, the full-year forecast is a net loss of ¥3.91B versus a cumulative Q3 net loss of ¥7.68B, meaning that the plan assumes standalone Q4 net income of ¥3.77B. Although the earnings forecast was revised during the current quarter, the revised plan itself assumes a concentration of earnings in the final quarter, making progress subject to verification.

Shareholder Returns

The dividend for the end of Q2 was ¥0 per share, and the year-end dividend for the fiscal year ending September 2026 remains undecided. Given the cumulative Q3 net loss of ¥7.68B and negative net assets of ¥2.76B, indicating negative net worth, capital allocation priorities for the time being appear to be securing working capital, repaying or refinancing short-term borrowings, and stabilizing the capital base rather than paying dividends. The payout ratio is 0% because no dividend is being paid, but under continued net losses, the significance of this figure as an earnings distribution indicator is limited.

Risk Factors

1. Financial soundness (negative net worth and dependence on short-term liabilities): Net assets were negative ¥2.76B, and the equity ratio was negative 3.4%, indicating negative net worth. Of the ¥48.35B in interest-bearing debt, short-term borrowings of ¥46.89B account for the majority, creating a structure in which short-term refinancing and repayment conditions determine cash management.

2. Earnings dependence on the core business (Insurance Agency Business) and impairment: The Insurance Agency Business, which accounts for 67.5% of consolidated revenue, generated higher revenue of +9.4% YoY but recorded an operating loss of ¥3.37B. It also incurred an impairment loss of ¥2.06B due to declining profitability. The earnings trend of this business has a significant impact on consolidated performance.

3. Quarterly concentration required to achieve the full-year plan: Against the full-year operating income forecast of ¥4.23B, cumulative Q3 operating income was a loss of ¥2.71B, requiring standalone Q4 operating income of ¥6.94B, equivalent to a margin of 30.2%. The revenue progress rate was also 67.9%, below the standard 75%, meaning that rapid improvement in profitability is required to achieve the plan.

Industry Benchmark (Reference; Compiled by the Company)

Key Points in the Earnings Results

1. The operating loss improved by ¥4.28B YoY, but the gross margin declined 293bp to 74.4%, while SG&A expenses declined 12.4%. Accordingly, attention should be paid to the fact that the improvement was primarily driven by cost reductions rather than a structural improvement in earning power through revenue growth.

2. Net assets were negative ¥2.76B, indicating negative net worth, while cash and deposits remained at ¥24.69B, down 53.8% YoY. Dependence on short-term borrowings of ¥46.89B is high, and progress in cash management and refinancing will be an important point of observation in evaluating the Company’s future financial condition.

3. The narrowing of losses in the Insurance Agency Business, down 65.4% YoY, is a positive factor. However, the ¥2.06B impairment loss recognized in this business warrants careful observation regarding the sustainability of future earnings recovery. The ASP Business has a high operating margin of 34.2%, but accounts for only 4.6% of consolidated revenue, limiting its contribution to overall earnings.

---

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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

---End of Report---