Linical (2183) FY2026 Q3 Earnings Report

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Executive Summary

Due to worsening profitability in the CRO Business, the deficit expanded significantly from the same period of the previous year. Revenue was ¥6.84B (down -14.0% YoY), Operating Income was ¥-1.28B (¥-0.33B in the previous year), Ordinary Income was ¥-1.23B (¥-0.26B in the previous year), and Net Income was ¥-1.55B (¥-0.32B in the previous year). In addition to the decline in revenue, the gross margin fell to 16.2% (23.4% in the previous year), while SG&A expenses increased +9.1% YoY, which were the primary causes of the widening loss.

Factors Affecting Results

【Revenue】Revenue was ¥6.84B, down -14.0% YoY. The Company has changed to a single-segment structure consisting of the CRO Business, and does not disclose a breakdown of the factors behind changes by business or region. It should also be noted that the basis of comparison has changed due to the separation of the Drug Development Support Business, which coexisted through the previous fiscal period.

【Profit and Loss】Gross profit was ¥1.11B (gross margin of 16.2%), down 7.1pt from 23.4% in the previous year, and gross profit declined at a faster pace than the rate of revenue decrease. SG&A expenses were ¥2.39B, an increase of +9.1% YoY, and the SG&A-to-revenue ratio was 34.9% (up YoY). The increased fixed-cost burden amid declining revenue caused operating leverage to work in the opposite direction, and the Operating Loss widened to ¥1.28B (¥-0.33B in the previous year). In non-operating items, the Company recorded expenses of ¥0.06B, including a foreign exchange loss of ¥0.04B, resulting in an Ordinary Loss of ¥1.23B. Extraordinary income and losses were immaterial at ¥0.001B, while the expansion of the Net Loss to ¥1.55B was also affected by the recognition of ¥0.32B in income taxes and other taxes. In conclusion, the Company experienced declining revenue and earnings, with the deficit widening.

Segment Analysis

Beginning in Q3 of the current fiscal year, the Company changed to a single-segment structure consisting of the CRO Business, and has omitted the disclosure of segment-level revenue and profit-and-loss information. The individual performance of the former CRO Business and Drug Development Support Business cannot be compared under the current disclosure.

Key Financial Indicators

【Profitability】The Operating Profit Margin deteriorated significantly to -18.7% (-4.2% in the previous year), while the Net Profit Margin was -22.7% (-4.0% in the previous year). The gross margin was 16.2%, down from 23.4% in the previous year, indicating worsening project profitability.【Cash Flow Quality】Accounts receivable were ¥2.40B, declining from the previous year in line with the decrease in revenue; however, collection days on an annualized basis remain high and warrant attention from a cash collection perspective.【Investment Efficiency】Annualized ROE was -36.5%, and the Equity Ratio was 40.5% (43.2% in the previous year), indicating a declining trend. Goodwill of ¥3.07B accounted for 54.1% of net assets and, together with intangible fixed assets, amounted to approximately 45% of total assets, highlighting challenges in converting invested capital into returns.【Financial Soundness】Cash and deposits declined to ¥5.15B (-26.8% YoY), while short-term borrowings increased to ¥0.95B (+58.3% YoY) and long-term borrowings decreased to ¥0.80B (-27.3% YoY). Current assets were ¥9.25B against current liabilities of ¥6.55B, indicating that short-term payment capacity itself has been maintained.

Cash Flow Analysis

As figures for each section of the statement of cash flows (Operating, Investing, and Financing CF) have not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits decreased by ¥1.89B, from ¥7.04B in the same period of the previous year to ¥5.15B, indicating a decline in financial capacity broadly in line with the cumulative Net Loss of ¥1.55B. During this period, short-term borrowings increased by ¥0.35B, while long-term borrowings decreased by ¥0.30B, indicating a trend toward shorter-term financing. Retained earnings also declined by ¥1.91B to ¥4.52B from ¥6.44B in the previous year, and the decline in internal reserves due to the recognition of losses has affected the cash foundation. Going forward, in addition to improving operating results, trends in working-capital items such as accounts receivable and advances received will determine cash levels.

Earnings Quality

The expansion of the loss was attributable not to extraordinary income and losses but to worsening profitability in the core business; from an earnings-quality perspective, recurring business factors were the primary driver. Extraordinary losses, including losses on retirement of fixed assets, were limited to ¥0.001B, and their impact was extremely limited compared with the ¥1.28B expansion in the Operating Loss. Non-operating income and expenses consisted of income of ¥0.10B, including interest income of ¥0.04B, offset by expenses of ¥0.06B, including a foreign exchange loss of ¥0.04B, and were not large enough to materially reduce the Ordinary Loss. The Net Loss of ¥1.55B resulted from adding income taxes and other taxes of ¥0.32B to the loss before tax of ¥1.23B. The fact that a tax burden arose despite the deficit warrants attention as a cash-based burden, including the utilization status of tax loss carryforwards and tax payments by overseas subsidiaries. Comprehensive income was ¥-1.22B, with a foreign currency translation adjustment of +¥0.35B serving as an upward factor relative to the Net Loss of ¥1.55B; the divergence between Net Income and comprehensive income was primarily attributable to foreign exchange factors.

Earnings Forecasts and Guidance

Revenue reached 73.1% of the full-year Company forecast, slightly below the standard progress rate of 75%. The Operating Loss reached 94.6% of the full-year forecast of ¥1.35B, while the Net Loss reached 91.2% of the full-year forecast of ¥1.70B. This level indicates that substantial profitability improvement in Q4—reducing the Operating Loss to approximately ¥0.07B—will be required, with improvement in the gross margin and SG&A burden being key to achieving the full-year forecast. No revision has been made to the earnings forecast.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥16 per share. Given the full-year forecast Net Loss of ¥1.70B, the Payout Ratio has no meaningful calculative significance; the current-year return will be funded not from earnings but from existing retained earnings and cash. Retained earnings were ¥4.52B, down from ¥6.44B in the same period of the previous year, and the continuation of dividends during a loss-making period should be assessed together with the pace of decline in internal reserves. No disclosure has been made regarding share repurchases.

Risk Factors

1. Risk of fluctuations in the volume and mix of CRO projects: Revenue declined -14.0% YoY, while the gross margin also fell 7.1pt, indicating a structure in which lower project utilization directly affects profitability.

2. Fixed-cost burden and personnel utilization risk: SG&A expenses increased +9.1% YoY amid declining revenue, and the SG&A ratio rose to 34.9%; reduced fixed-cost absorption capacity has contributed to the expansion of the operating deficit.

3. Goodwill impairment risk: Goodwill of ¥3.07B accounts for 54.1% of net assets. If the recovery in CRO Business profitability is delayed, future impairment losses could further deteriorate net assets and the Equity Ratio.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company's profitability is substantially below the industry median, with both its Operating Profit Margin and Net Profit Margin ranking toward the lower end of the industry.

Growth and Capital Efficiency

While the industry median is on a revenue growth trajectory, the Company experienced declining revenue and is also disadvantaged within the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. As the gross margin fell 7.1pt to 16.2% and the SG&A ratio rose to 34.9%, the loss expanded at a faster pace than the decline in revenue. Whether structural improvement in business profitability can be achieved will be the key focus going forward.

2. Progress against the full-year forecast was high at 94.6% for the Operating Loss and 91.2% for the Net Loss. The degree of profitability improvement achieved in Q4 will be the determining factor in whether the forecast is met.

3. With goodwill of ¥3.07B accounting for 54.1% of net assets, cash and deposits declined -26.8% YoY while short-term borrowings increased +58.3% YoY, indicating a shortening of the financing structure. Cash management and asset soundness during the loss-making period are key points of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥60–¥63 at Cost of Equity ±1%, and ¥59–¥64 at ω±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if impairment occurred.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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

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