OKWave Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥64M
• Operating Income: ¥-28M
• Net Income: ¥-44M
• EPS: ¥-0.73

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: Weak quarter with deep operating losses despite topline growth, and liquidity risk remains acute. Revenue rose 47.8% YoY to 0.64, but gross profit was only 0.13 with a gross margin of 20.6%, indicating limited pricing power or high delivery costs. SG&A of 0.62 overwhelmed gross profit, driving operating income to -0.28 and ordinary income to -0.35. Net income was -0.35, equating to a net margin of -54.7% and ROE of -6.1% on equity of 5.74. Asset turnover remains extremely low at 0.034, reflecting small scale against a relatively large asset base (18.86). Operating margin compressed to -43.8% for the quarter (vs. prior-year margin not disclosed, limiting precise bps analysis). Non-operating items netted roughly neutral (income 0.04, expenses 0.02), insufficient to offset operating weakness. Liquidity is strained: current ratio 0.58 and quick ratio 0.58 with negative working capital of -5.46, implying a short-term funding gap despite cash of 7.01. Leverage is high with D/E at 2.29x, raising refinancing and covenant risks if debt-like short-term obligations exist. Earnings quality cannot be assessed due to unreported cash flows, leaving uncertainty about the cash conversion of earnings. Break-even analysis suggests revenue needs to be ~3.0 per quarter at the current 20.6% gross margin to cover SG&A of 0.62, versus the current 0.64, implying a roughly 4.7x revenue step-up or material cost reductions. Book value per share is 11.37 JPY, supported largely by capital surplus (21.14) offset by accumulated deficits (retained earnings -18.45). Tax line is effectively a small benefit versus pretax loss, but detailed tax disclosure is missing. No dividend information was disclosed, consistent with the loss position and accumulated deficits. Forward-looking, the company must either accelerate revenue, lift gross margins, or reduce SG&A materially, and address the short-term liability overhang; absent these, capital measures may be necessary.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-54.7%) × 0.034 × 3.29 ≈ -6.1%. The dominant driver of weak ROE is the severely negative net margin, as asset turnover is very low but stable in its effect, and leverage merely amplifies the loss. The negative margin stems from gross margin of 20.6% that is far below the SG&A intensity (SG&A of 0.62 vs. gross profit of 0.13), leading to operating margin of -43.8%. Business reason: scale is too small to absorb fixed costs; either pricing is weak or cost of delivery is high, and SG&A does not flex with revenue at current levels. Sustainability: The current loss profile is not sustainable; improvement requires either a step-change in revenue (to ~3.0 per quarter at current margins) or margin expansion and cost cuts. Concerning trend flags: SG&A absolute level far exceeds gross profit; with revenue +47.8% YoY but still loss-making, operating leverage remains negative at current scale. Without SG&A disclosure details, we cannot isolate specific line items, but overhead rationalization appears necessary.

Growth Assessment

Revenue grew 47.8% YoY to 0.64, but the base is small and does not translate into profitability due to low gross margin and high SG&A. Profit quality is weak: operating income -0.28 and net -0.35 indicate that growth is not yet profitable. Given a 20.6% gross margin, break-even revenue is estimated at ~3.0 per quarter (0.62 / 0.206), implying a significant gap. Outlook hinges on: 1) ability to raise gross margin (pricing, mix, or COGS control), 2) SG&A restructuring to right-size the cost base, and 3) monetization of assets or business model enhancements to lift asset turnover above 0.034. With non-operating items small (net roughly neutral), sustained profitability must come from the core. Absent visible margin levers or cost actions, growth alone may not be sufficient in the near term.

Financial Health

Liquidity is weak: current ratio 0.58 and quick ratio 0.58 (both well below 1.0), with working capital of -5.46. Cash and deposits of 7.01 cover only ~54% of current liabilities (12.90), indicating a short-term funding gap unless liabilities are largely non-cash/contractual in nature (details unreported). Solvency risk is elevated: D/E 2.29x (>2.0 warning). Total liabilities are 13.12 vs. equity 5.74; financial leverage 3.29x. Maturity mismatch risk is significant given high current liabilities; without disclosed short-term loan details, refinancing risk cannot be fully assessed. No off-balance sheet obligations are disclosed in the provided data. Goodwill and intangibles total ~1.44 (≈7.6% of assets), modest, but not a liquidity source.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be calculated; earnings quality assessment is therefore limited. With net losses and negative working capital, free cash flow sustainability for any commitments (capex/dividends) cannot be evaluated. No signs of working capital manipulation can be inferred given minimal receivables (0.15) and unreported inventories; however, the large current liabilities relative to current assets warrants scrutiny of payables/contract liabilities and their timing.

Dividend Sustainability

Dividend data are unreported. Given net loss (-0.35), accumulated deficits (retained earnings -18.45), and liquidity stress (current ratio 0.58), capacity to pay dividends appears constrained. FCF coverage cannot be assessed due to missing cash flow and capex data. Policy outlook likely conservative until profitability and liquidity improve.

Risk Assessment

Business Risks:

• Inability to scale revenue to break-even (~3.0 per quarter estimated) leading to sustained losses
• Low gross margin (20.6%) limits operating leverage
• Potential customer concentration or demand volatility (not disclosed)
• Execution risk in cost restructuring and monetization efforts

Financial Risks:

• Liquidity risk: current ratio 0.58 and negative working capital (-5.46)
• High leverage: D/E 2.29x; potential refinancing/covenant risk if debt-like obligations exist
• Maturity mismatch: cash 7.01 vs current liabilities 12.90
• Going concern uncertainty if losses persist without external funding or liability management

Key Concerns:

• Earnings quality opacity due to unreported cash flows
• Dependence on capital surplus to support equity amid accumulated deficits
• Limited non-operating income to offset operating losses

Investment Implications

Key Takeaways:

• Topline growth (+47.8% YoY) but scale remains insufficient; net margin -54.7%
• Operating margin -43.8% with SG&A (0.62) far above gross profit (0.13)
• Severe liquidity pressure: current ratio 0.58; working capital deficit -5.46
• High leverage: D/E 2.29x; equity supported by capital surplus despite retained losses
• Break-even revenue estimated at ~3.0 per quarter at current margins

Metrics to Watch:

• Operating cash flow and free cash flow (once disclosed)
• Current ratio and timing/structure of current liabilities
• Revenue run-rate and gross margin trajectory
• SG&A as a percentage of revenue (cost actions)
• Asset turnover improvement and utilization of noncurrent assets
• Any capital raising, refinancing, or liability restructuring announcements

Relative Positioning: Relative to small-cap domestic peers, the company exhibits weaker liquidity and profitability with higher financial leverage; near-term performance depends on rapid scaling or cost realignment to restore operating leverage.

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