10-Q: SBC Medical Group Q3 2025: Revenue Declines, Net Income Soars

SBC Medical Group Holdings Incorporated reported a significant increase in net income for Q3 2025 despite a decline in overall revenues, driven by non-operating gains and reduced operating expenses.

Summary

• Total revenues, net, decreased by 18.33% to $43,353,235 for the three months ended September 30, 2025, from $53,084,883 for the same period in 2024.
• Total revenues, net, decreased by 16.74% to $134,040,783 for the nine months ended September 30, 2025, from $160,995,005 for the same period in 2024.
• Net income attributable to SBC Medical Group Holdings Incorporated increased by 352.70% to $12,824,636 for the three months ended September 30, 2025, from $2,832,894 for the same period in 2024.
• Net income attributable to SBC Medical Group Holdings Incorporated decreased by 8.21% to $36,785,322 for the nine months ended September 30, 2025, from $40,075,054 for the same period in 2024.
• Gross profit decreased by 29.20% for the three months ended September 30, 2025, and by 19.50% for the nine months ended September 30, 2025.
• Operating expenses decreased by 49.90% for the three months ended September 30, 2025, and by 22.75% for the nine months ended September 30, 2025, primarily due to the absence of stock-based compensation expense in 2025.
• Other income (expenses) significantly increased by 389.45% for the nine months ended September 30, 2025, largely due to an $8,746,138 gain on redemption of life insurance policies and an unrealized gain on a public entity investment.
• Net cash used in operating activities was $(27,295,426) for the nine months ended September 30, 2025, a reversal from $27,886,231 provided in the prior year.
• The company acquired 100% equity interest of MB Career Lounge, Co., Ltd. for JPY 2,040,000,001 (approximately $14,150,453) in July 2025.
• The Board approved proceeding with the acquisition of common shares of Waqoo, Inc., a Japanese company listed on the Tokyo Stock Exchange, to obtain a controlling interest, with a tender offer commencing November 14, 2025.
• Disclosure controls and procedures were not effective as of September 30, 2025, due to identified material weaknesses.

Sentiment

Score: 4

Explanation: While Q3 net income saw a significant jump due to non-operating gains (life insurance redemption) and reduced stock-based compensation, the underlying revenue decline across core services and negative operating cash flow for the nine-month period are concerning. The identified material weaknesses in internal controls also add a layer of risk. Strategic acquisitions are positive, but overall financial health shows signs of weakness.

Positives

• Net income attributable to SBC Medical Group Holdings Incorporated increased significantly by 352.70% for the three months ended September 30, 2025, reaching $12,824,636.
• Other income (expenses) saw a substantial increase of 389.45% for the nine months ended September 30, 2025, driven by an $8,746,138 gain on redemption of life insurance policies and an unrealized gain on a public entity investment.
• Operating expenses decreased by 49.90% for the three months ended September 30, 2025, and by 22.75% for the nine months ended September 30, 2025, primarily due to the absence of stock-based compensation expense in the current year.
• Rental services revenue increased by 50.79% for the three months ended September 30, 2025, and by 67.13% for the nine months ended September 30, 2025, driven by new clinic openings and increased demand for medical equipment.
• Cash and cash equivalents increased to $127,431,318 as of September 30, 2025, from $125,044,092 as of December 31, 2024.
• The company completed a $5.0 million share repurchase program in July 2025, repurchasing an aggregate of 1,034,308 shares.
• Strategic acquisition of MB Career Lounge, Co., Ltd. in July 2025 expands management supporting services for medical institutions in Japan.
• Planned acquisition of controlling interest in Waqoo, Inc. aims to accelerate research and development initiatives and integrate advanced technologies within the SBC Group.

Negatives

• Total revenues, net, decreased by 18.33% for the three months ended September 30, 2025, and by 16.74% for the nine months ended September 30, 2025.
• Franchising revenue decreased by 36.71% for the three months ended September 30, 2025, and by 21.51% for the nine months ended September 30, 2025, mainly due to a revision of the fee structure.
• Procurement revenue decreased by 23.70% for the three months ended September 30, 2025, and by 1.82% for the nine months ended September 30, 2025, primarily due to a reduction in orders for new medical materials.
• Management services revenue decreased by 21.87% for the three months ended September 30, 2025, and by 47.54% for the nine months ended September 30, 2025, due to the discontinuation of clinic operation staff supporting services, decreased customer rewards program revenue, and fee structure revision.
• Gross profit decreased by 29.20% for the three months ended September 30, 2025, and by 19.50% for the nine months ended September 30, 2025.
• Net cash used in operating activities was $(27,295,426) for the nine months ended September 30, 2025, a significant reversal from the $27,886,231 provided in the prior year.
• Net income attributable to SBC Medical Group Holdings Incorporated decreased by 8.21% for the nine months ended September 30, 2025.
• Accounts receivable from related parties increased by $28,031,690 for the nine months ended September 30, 2025.
• Finance lease receivables from related parties increased by $9,227,612 for the nine months ended September 30, 2025.
• Notes and other payables to related parties decreased by $12,759,536 for the nine months ended September 30, 2025.
• Advances from customers related parties decreased by $5,470,844 for the nine months ended September 30, 2025.
• Income tax payable decreased by $19,936,155 for the nine months ended September 30, 2025.

Risks

• Future financial performance of the Company is uncertain.
• Changes in the market and level of demand for products and services could adversely affect the company.
• The ability to access additional capital may be constrained.
• Maintaining the listing of the company's common stock on Nasdaq is a continuous requirement.
• The impact from the outcome of any known and unknown litigation could be material.
• The ability to forecast and maintain an adequate rate of revenue growth and appropriately plan expenses is critical.
• Future expenditures could impact financial results.
• The future mix of revenue and its effect on gross margins is a risk factor.
• Attraction and retention of qualified directors, officers, employees, and key personnel is essential.
• The ability to protect and enhance the company's corporate reputation and brand is vital.
• Relationships and actions of the company and its affiliates with third parties could pose risks.
• Impact from future regulatory, judicial, and legislative changes in the company's industry.
• The ability to locate and acquire complementary products or product candidates and integrate them into the business.
• Future arrangements with, or investments in, other entities or associations carry inherent risks.
• Intense competition and competitive pressures from other companies in the industries in which the company operates.
• The possibility that the company may be adversely affected by other economic, business, and/or competitive factors.
• Disclosure controls and procedures were not effective as of September 30, 2025, due to identified material weaknesses.
• The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment, the inherent inability to completely eliminate the risk of misconduct or error, resource constraints, and the potential for controls to become inadequate over time.
• Exposure to foreign currency exchange rate fluctuations, particularly the Japanese Yen against the U.S. dollar, could negatively impact financial results.

Future Outlook

The company plans to maintain and strengthen its market position and brand in the cosmetic medical treatment management market in Japan, Vietnam, and Singapore, with an objective to grow its presence globally. It expects to deploy capital for investment opportunities that align with its growth strategy in the expanding global medical aesthetics market and will continue to evaluate alternative methods for capital deployment, including dividends to stockholders and repurchases of shares of common stock.

Management Comments

• Our primary mission is to provide quality comprehensive management services to the MCs and expand our Shonan Beauty Clinic brand.
• We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam and Singapore, and by growing our presence globally.
• The Company evaluates its capital allocation practices with the objective of enhancing shareholder value, while considering performance, the business environment, macroeconomic conditions and other relevant factors.
• The Company expects to deploy capital for investment opportunities that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.

Industry Context

The company operates primarily in the cosmetic medical treatment management market in Japan, with a strategic focus on expanding its presence in Vietnam and Singapore. The planned acquisition of Waqoo, Inc. signifies a move towards vertical integration and technological advancement, aiming to accelerate R&D, enhance offerings in clinical areas like AGA and orthopedics, develop new treatment methods, and establish a seamless framework from research to commercialization for skincare products. This strategy positions the company to leverage advanced technologies and clinical insights within the broader medical aesthetics and healthcare sector.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Not currently a party to any material litigation or other legal proceedings.

Related Party Transactions

• Significant transactions with Medical Corporations (MCs) where relatives of the CEO are members, including revenues, accounts receivable, and finance lease receivables.
• Accounts receivable from related parties increased to $58,585,273 as of September 30, 2025, from $28,846,680 as of December 31, 2024.
• Finance lease receivables from related parties increased to $24,467,616 as of September 30, 2025, from $14,390,167 as of December 31, 2024.
• Long-term investments in MCs (related parties) totaled $18,869,390 as of September 30, 2025.
• Accounts payable to related parties increased to $2,842,877 as of September 30, 2025, from $659,044 as of December 31, 2024.
• Advances from customers related parties decreased to $6,957,477 as of September 30, 2025, from $11,739,533 as of December 31, 2024.
• Notes and other payables to related parties (current portion) decreased to $1,637,370 as of September 30, 2025, from $26,255 as of December 31, 2024.
• Due to related party (Yoshiyuki Aikawa, CEO) was $2,791,808 as of September 30, 2025.
• A subsidiary provided a guarantee on the debt of its CEO (Yoshiyuki Aikawa) in the amount of $250,489 as of September 30, 2025.
• In June 2025, the company entered into a memorandum of sale for an aircraft with General Incorporated Association SBC (an entity controlled by the CEO), with the original sale price increased by approximately $9.68 million, recorded as a deemed contribution.

Stakeholder Impact

• Shareholders are impacted by declining core revenues, a significant increase in Q3 net income driven by non-operating factors, negative operating cash flow for the nine-month period, and the completion of a share repurchase program. The identified material weaknesses in internal controls pose a governance risk.
• Employees may be affected by operational changes, such as the discontinuation of clinic operation staff supporting services, which led to the termination of related staff.
• Customers, particularly Medical Corporations (MCs) and their end customers, are impacted by revised fee structures for services, changes in procurement offerings, and the management of loyalty programs. New clinic openings and equipment replacement drive increased demand for rental services.
• Suppliers and vendors may experience changes in order volumes due to shifts in procurement activities and the company's cost reduction efforts.
• Creditors face exposure to the company's increased long-term loans and guarantees provided by a subsidiary on the CEO's debt.

Next Steps

• Conclude the tender offer for Waqoo, Inc. common stock by December 12, 2025.
• Settle the tender offer for Waqoo, Inc. on December 19, 2025.
• Acquire 989,802 shares of Waqoo from CEO Dr. Yoshiyuki Aikawa, subject to the settlement of the tender offer.
• Integrate Waqoo into the SBC Group to accelerate R&D and enhance offerings in clinical areas such as AGA and orthopedics.
• Jointly promote the development and implementation of skincare products with Waqoo.
• Continue to monitor and enhance internal control over financial reporting to remediate identified material weaknesses.
• Evaluate the impact of ASU No. 2023-09 (Income Taxes) and ASU No. 2025-05 (Financial Instruments—Credit Losses) on consolidated financial statements and related disclosures.

Key Dates

Recommendation

While the Q3 net income shows a substantial increase, this is largely driven by non-recurring gains (life insurance redemption) and reduced stock-based compensation, masking a concerning decline in core revenues across franchising, procurement, and management services. The shift to negative operating cash flow for the nine-month period and the acknowledged material weaknesses in internal controls are significant red flags. The strategic acquisitions of MB Career Lounge and the planned acquisition of Waqoo, Inc. offer potential for future growth and diversification, but their integration and impact are yet to be fully realized. Given the mixed financial signals, the underlying operational challenges, and governance concerns, a 'hold' recommendation is appropriate as investors await clearer signs of sustainable revenue growth and remediation of internal control issues, while monitoring the success of the new acquisitions.

Keywords

SBC Medical Group Holdings, Quarterly Report, Financial Results, Cosmetic Medical Treatment, Japan, Management Services, Franchising, Procurement, Rental Services, Waqoo Acquisition, Share Repurchase, Internal Controls, SEC Filing, Healthcare, Medical Aesthetics, Nasdaq, Yoshiyuki Aikawa, Bitcoin, Cryptocurrencies