Welby Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥380M
• Operating Income: ¥-421M
• Net Income: ¥-538M
• EPS: ¥-50.23

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 (cumulative) shows solid top-line growth but severe operating losses, indicating an unsustainable cost structure absent rapid operating leverage improvements. Revenue reached 3.80 (100M JPY), up 28.0% YoY, but operating income was -4.21 (100M JPY) and net income -4.15 (100M JPY), translating to a net margin of -109.2%. Gross profit was reported at 2.01 (100M JPY) with a gross margin of 52.9%, while SG&A expenses were 7.38 (100M JPY), roughly 1.94x revenue, overwhelming gross profit. Operating margin was approximately -110.8%, and ordinary income was -4.22 (100M JPY), showing that non-operating items are negligible in offsetting operating losses. EPS (basic) was -50.23 JPY and book value per share is about 52.08 JPY, reflecting accumulated deficits (retained earnings -23.10 (100M JPY)). Liquidity is adequate in the short term with a current ratio of 157.1% and cash of 4.48 (100M JPY) exceeding current liabilities of 3.37 (100M JPY), but interest coverage is deeply negative (-383x) due to operating losses. Financial leverage is moderate (assets/equity 1.81x), and equity ratio is approximately 55.2% (calculated), but continued losses will erode this buffer. ROE is a steep -96.3% driven by deeply negative margins; asset turnover (0.487x) and leverage (1.81x) are secondary contributors. Margin trend (bps expansion/compression) cannot be quantified YoY due to missing prior-period margin data; however, current levels are clearly loss-making. There are data inconsistencies between reported revenue, cost of sales, gross profit, and operating income that likely reflect classification differences (e.g., other operating income/expenses); conclusions focus on reported bottom-line figures. Cash flow data are unreported, preventing assessment of earnings quality via OCF/NI; this is a key data gap. Intangibles and goodwill total 2.82 (100M JPY), implying potential impairment risk if growth underperforms. Forward-looking, the company must materially reduce SG&A intensity and improve monetization (ARPU, utilization) to reach break-even; otherwise, capital raise risk rises within the next 12–18 months given the current cash balance versus loss scale.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-109.2%) × 0.487 × 1.81 ≈ -96.3%. The dominant driver is the net profit margin, which is deeply negative due to operating losses (SG&A at 7.38 vs. gross profit 2.01). Asset turnover of 0.487x is modest for a digital health/services model and not the primary drag. Financial leverage at 1.81x is moderate and neither amplifies returns nor risks materially at present. The largest change component is presumed to be margin (we lack prior-period decomposition), as non-operating items are immaterial and leverage stable. Business reason: revenue growth (+28%) is insufficient against fixed/semi-fixed cost growth, indicating a scale-up phase with heavy personnel, development, and go-to-market expenses outpacing monetization. Sustainability: current negative margins are not sustainable; improvement hinges on operating leverage (higher utilization/ARPU, better pricing, automation) and SG&A discipline. Concerning trends include SG&A/revenue at ~194%, which signals cost growth exceeding revenue growth; absent clear evidence of near-term cost normalization, losses may persist.

Growth Assessment

Revenue grew 28.0% YoY to 3.80 (100M JPY), showing demand traction. However, operating income of -4.21 and net income of -4.15 indicate growth is not translating to profitability yet. Gross margin stands at 52.9%, suggesting a scalable service model if volume expands, but the SG&A load currently absorbs all gross profit and more. With non-operating income/expenses near zero, profit quality is driven almost entirely by core operations. Lack of segment, customer, and cohort metrics limits visibility into sustainability (e.g., retention, ARPU, contract pipeline). Outlook: break-even requires a significant reduction in SG&A intensity or acceleration of revenue; at today’s structure, revenue likely needs to roughly double (order-of-magnitude) to approach operating break-even, assuming stable gross margin and some operating leverage. Near-term growth catalysts likely include payer/provider adoption and expansion of existing programs; risks include reimbursement/regulatory timing and enterprise sales cycles.

Financial Health

Liquidity: Current ratio 157.1% and quick ratio 157.1% indicate healthy short-term liquidity; cash and deposits of 4.48 exceed current liabilities of 3.37 by 1.11 (100M JPY). No explicit warning on current ratio (<1.0) is needed. Solvency: Debt-to-equity is 0.81x (calculated), with long-term loans at 0.13 (100M JPY); overall leverage is moderate. Equity ratio (calculated) is ~55.2% (4.31/7.81), providing a capital buffer, though losses continue to erode equity (retained earnings -23.10). Maturity mismatch: Current liabilities (3.37) are largely covered by cash (4.48), suggesting limited near-term refinancing risk; long-term debt is small. Off-balance sheet: No disclosures of lease or other contingent liabilities are available; inability to assess off-BS obligations is a limitation. Debt service: Interest expense is minimal (0.01), but interest coverage is negative given operating losses; if losses persist, debt service remains covered by cash rather than earnings.

Cash Flow Quality

OCF data are unreported, so OCF/Net Income cannot be assessed; this is a material constraint on earnings quality analysis. With net income at -4.15 (100M JPY) and cash of 4.48, cash runway depends on true operating cash burn; if NI approximates cash burn (often not the case), runway could be limited to roughly a year, but this is speculative without OCF and working capital details. Free cash flow (FCF) is unreported; capex and capitalized development spend are unknown, which also affects FCF assessment. No clear signs of working capital manipulation can be identified due to missing receivables/payables turnover and OCF detail. Key watchpoint: confirmation of OCF trajectory relative to NI in the Q4 report to gauge cash burn sustainability.

Dividend Sustainability

Dividend data are unreported and retained earnings are negative (-23.10), indicating no capacity for dividends under a conservative policy. With losses and unknown FCF, any distribution would be unsustainable. Near-term focus should remain on funding growth and achieving break-even; policy outlook likely remains no dividend until profitability and positive OCF are established.

Risk Assessment

Business Risks:

• Execution risk in scaling digital health services: revenue growth (+28%) not yet covering SG&A, risking prolonged losses.
• Regulatory/reimbursement risk affecting product adoption and pricing in healthcare.
• Customer concentration and contract renewal risk (not disclosed) typical for B2B healthcare platforms.
• Product-market fit and monetization risk (ARPU, utilization, cohort retention) not evidenced in disclosures.

Financial Risks:

• Going-concern pressure if losses persist; cash 4.48 vs. cumulative NI -4.15 suggests limited runway without OCF improvement.
• Impairment risk: goodwill 1.06 and intangibles 1.76 could face write-downs if growth underperforms.
• Negative interest coverage (-383x) implies dependence on cash for debt service.
• Equity erosion from continued deficits despite a currently moderate leverage profile.

Key Concerns:

• SG&A intensity at ~194% of revenue with no evidence of near-term normalization.
• Data gaps: OCF, capex, and detailed SG&A breakdown unavailable, limiting visibility into burn and operating leverage.
• Inconsistencies between revenue, cost of sales, gross profit, and operating income suggest classification items not disclosed, complicating margin analysis.
• Potential need for external financing within 12–18 months if burn persists and OCF is negative.

Investment Implications

Key Takeaways:

• Strong top-line growth (+28% YoY) but severe operating losses (OPM ~ -111%) drive ROE to -96.3%.
• Liquidity is adequate near term (current ratio 157%), but cash runway may be limited absent OCF improvement.
• Non-operating items are negligible; profitability hinges entirely on core operations and SG&A control.
• Balance sheet still equity-rich (~55% equity ratio), but accumulated losses are large (retained earnings -23.10).
• Intangible-heavy balance sheet raises impairment optionality if performance disappoints.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (target >1.0).
• SG&A/revenue ratio and sequential SG&A trend.
• Gross margin stability vs. scale effects.
• Annualized revenue run-rate, ARPU, and cohort retention/expansion (if disclosed).
• Cash balance and net cash burn per quarter (implied runway).
• Contract wins, backlog, and pipeline conversion in healthcare payers/providers.

Relative Positioning: Within Japan’s digital health/services space, Welby shows healthy growth but weaker profitability and cash flow visibility compared to peers that have begun to demonstrate operating leverage; balance sheet liquidity is a relative positive, yet ongoing losses elevate financing risk if scale efficiency does not materialize.

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
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