Falcom Q1 Report for 2016 – Total Sales Down 45.4% from 2015 Q1

Editor’s Note: This article looks bad. I was worried about writing it but glad I waited to let it process mentally before I actually wrote it, because there are some things from a bigger picture that are worth pointing out. I’ll do so at the end of the article to prevent confusion.

Today, Falcom revealed their Q1 financial information. This information runs from Oct 1, 2015 to Dec 31, 2015. (Editor’s note: Falcom’s ‘End of Year’ is Sept 30th.) Please see the table below for the numbers:

	Total Sales		Operating Profit		Current Profit		QTR Net Income
Q1 2016	¥340,000,000 ($2,964,000)	? 45.4%	¥151,000,000 ($1,316,000)	? 64.7%	¥152,000,000 ($1,325,000)	? 64.4%	¥106,000,000 ($924,000)	? 61.9%
Q1 2015	¥623,000,000 ($5,431,000)	? 97.5%	¥428,000,000 ($3,731,000)	? 224.5%	¥426,000,000 (3,714,000)	? 221.7%	¥280,000,000 ($2,441,000)	? 221.4%

All conversions are approximations, and have been rounded accordingly.
Conversion rates valid as of 2/10/2016 @ 1:00am Central Time

2016 Quarter 2 Forecast

(In million yen increments.)

	Total Sales		Operating Profit		Current Profit		Share Price
Q2 2016	460	? 40.2%	100	? 75.8%	100	? 75.6%	67	? 76.5%
EOY 2016	1700	? 7.9%	700	? 1.0%	700	? 1.4%	469	? 2.8%

Quantitative Data Regarding Current Quarter

Operational Details

This company is a content maker that strives to reach out to customers across the world with its game contents and services filled with personality and character over multiple platforms.

For this quarter, manufactured goods from the company itself include Tokyo Xanadu (released on 9/27/2015), a new title which received the Future Class Award from the Japan Game Awards at Tokyo Game Show, competing alongside 473 exhibiting companies and 2004 titles.

Currently, the company is eagerly working on the upcoming Ys VIII -Lacrimosa of DANA-. With its first game released in 1987, the Ys series is an action RPG that has seen many titles on multiple platforms and localized into North America, Europe, and Asia. It stands alongside the ‘Kiseki’ series as one of the company’s masterpieces.

Licenses include Trails in the Sky SC Evolution, which was released on 12/27/2015. There have also been collaborative projects for Phantasy Star Online 2 (from Sega Games), and Taiko Master V (Bandai Namco Games).

Furthermore, along with currently available downloadable titles, North America saw the release of The Legend of Heroes Trails of Cold Steel for PS3 and PlayStation Vita, while Asia saw releases of Trails in the Sky FC Evolution and Ys Memories of Celceta. [Editor’s Note: European release of Cold Steel happens during Falcom’s Q2.]

Financially, licensing releases for this quarter reached 189 million yen (approx. $1,645,000), which is a 57.2% decrease from this quarter last year.

---

Detailed summaries and my observations can be found behind the cut….

Detailed Financial Summary

In thousand yen increments

	Prev. Year	Current Year
Property Division
Current Assets
Cash on Hand	3,052,949	3,395,102
Accounts Receivable	586,647	97,051
Manufactured Goods	2,487	1,627
Raw Materials	3,807	2,999
Misc.	40,324	31,484
Current Assets Sum	3,686,216	3,528,266
Fixed Assets
Tangible Property	7,389	6,640
Intangible Fixed Assets	5,374	4,742
Misc. Fixed Assets	157,139	156,040
Fixed Assets Sum	170,139	167,424
Total Assets	3,856,356	3,695,690
Liabilities Division
Current Liabilities
Accounts Payable	107,330	9,585
Unpaid Corp. Taxes	83,053	31,834
Prize Reserves	20,250	3,750
Misc.	120,383	90,322
Current Liabilities Sum	331,017	135,492
Total Liabilities	331,017	135,492
Net Worth Division
Shareholder Equity
Capital Stock	164,130	164,130
Capital Surplus	319,363	319,363
Profit Surplus	3,041,962	3,076,821
Treasury Stock	?117	?117
Shareholder Equity Sum	3,525,338	3,560,197
Net Worth Sum	3,525,338	3,560,197
Sum of Liabilities and Net Worth	3,856,356	3,695,690

Current Quarter Financial Statement

In thousand yen increments

	Q1 2015 10/1/2014 ~ 12/31/2014	Q1 2016 10/1/2015 ~ 12/31/2015
Total Sales	626,944	340,764
Cost of Goods Sold	52,955	44,396
Sales Profit	571,039	296,367
Sales and Administrative Costs	142,719	145,265
Operating Profit	428,319	151,102
Earnings Outside of Business
Profit from Unpaid Dividends	865	702
Dividends Received	—	286
Sum of Earnings Outside of Business	865	988
Costs Outside of Business
Exchange Loss	2,247	—
Sum of Costs Outside of Business	2,247	—
Current Profits	426,937	152,090
Quarter Net Income Before Tax	426,937	152,090
Corporation, Municipal, and Enterprise Taxes	112,601	30,231
Corporation Tax Adjustment Sum	34,230	15,040
Sum of Misc. Corporation Taxes	143,832	45,271
Quarter Net Income	280,105	106,818

Observations

As promised, I’m adding in some observations of these numbers.

Like I said in my first line, the report itself looks awful, and I’m sorry for that headline, since it seems very alarmist. However, when you look at the numbers from 2014/2015, you can see that this quarter last year had a massive jump of over 200% from the year before. So this seems like they’re stabling out again, in a sense. When looking at the numbers above, you can see that they are still posting a profit- so there is no loss in this picture at all.

As a result, though these numbers seem scary, it looks like Falcom is kind of holding stable still and coming back off of the massive sales high that was Sen no Kiseki II- remember this game broke their sales records, too, and they kept the pace going for quite a bit, it seems.

In the forecast, Falcom has seemingly predicted this trend, so it’s not out of the blue for them at this point. If they keep on track, then they should be close to their predicted numbers at the end of the year, which would put them a little higher over the 2015 EOY numbers.

Overall, it doesn’t look too bad, health-wise for the company. In fact, they seem to still be healthy, financially… this just proves that the Kiseki/Trails games are monster sellers in Japan. However, their stock has taken a hit for the lower numbers. As of close today they are sitting at 640 points, which is a 8.18% decrease from yesterday.

[ Falcom IR Report (PDF) ]
[ GameBiz Report ]