SBC Medical Group Holdings Inc (SBC) Q1 2026 Earnings Call Transcript

Thank you very much for joining the SBC Medical Group Holdings First Quarter Earnings Briefing today. Today's session will be led by Yuya Yoshida, Director, CFO, COO, and AI Evangelist, together with myself, Hikaru Fukui, Head of IR Department, who will serve as a moderator. Thank you for being with us. We will begin with a presentation delivered by AI Avatar. The content has been reviewed and approved by management in advance. After the presentation, we will move on to the Q&A session.

To submit a question, please click the Q&A icon at the bottom of your screen. type in your question and send it to us now let us begin the presentation i am yoshida cfo of sbc medical group holdings thank you very much for joining our conference call today despite your busy schedules i will now present our financial results for the first quarter of 2026 first let me cover the clinic highlights both the number of customers and average revenue per visit increased year-over-year, and total revenue rose accordingly, including same clinic revenue. We will continue to enhance service levels through our multi-brand strategy, which enables us to address diverse customer needs with precision, as well as through the development of new services. Next, the consolidated income statement, total revenues for the first quarter of 2026 were $43 million. While this represents a 9% year-over-year decline, the primary driver was the fee structure revisions that took effect in April of last year, which had a negative impact of $6.2 million on franchising revenue and $2.4 million on management services revenue, totalling an $8.7 million decrease. In addition, procurement revenue and rental services revenue declined year-over-year. On the other hand, management services revenue was offset by an increase in point revenue. Please also note that net income attributable to SBC Medical Group declined year over year, partly because the prior year quarter included a one-time life insurance surrender gain of $8.7 million. As I mentioned, the revenue decline was primarily attributable to the fee structure revisions. Excluding the fee structure revisions of $8.7 million and further adjusting for the $1.3 million difference in AHH consolidation period, underlying revenue grew 211% year over year. Similarly, excluding the fee structure revisions of $8.7 million, underlying EBITDA grew 217% year over year. While the headline figures show a decline in both revenue and profit, I would like to emphasize that excluding the impact of the phase structure revisions from the prior year, both revenue and EBITDA demonstrated solid underlying growth. That concludes my presentation. Thank you for your attention.

We will now move on to the Q&A session. To submit a question, please click the Q&A icon at the bottom of your screen. Type your question and send it to us. So, first question is regarding clinic revenue growth and competitive environment. Clinic revenue grew significantly year over year this quarter, including self-clinic sales. Do you view this as a sign that the competitive environment has started to normalize?

Okay, I answered the question. Overall, I think yes, we do feel that the competitive environment of Japanese and the global aesthetic market has eased to some extent compared to where it was previously. and our domestic clinic operations are performing well. We are expanding our customer base while maintaining a consistently high repeat customer ratio. And the average customer ticket, average revenue per customer, has also begun to recover. So our priority is to further strengthen customer trust and capture the underlying growth of the market so uh and then on top of that uh we are also seeing a meaningful momentum in non-aesthetic categories such as AGA and uh dentistry so we see these as adjacent area as promising growth domains and uh we we intend to invest in scaring them in power okay thank you very much uh so next question is uh regarding the key structure uh with the q1 uh 2026 uh q on q uh plus nine percent revenue growth is the impact of early uh 2025 uh pricing market adjustment uh now over um yeah basically i think yes uh we uh basically view uh fiscal year 2025 last year as a transition year uh they put the company on a healthier footing uh so we think reported revenue decline due to restructuring and fee structure changes but as you can see now our profitability improved

and the overrunning space became more normalized in that sense uh yes you're right uh we think uh the impact of fee structure is kind of now over thank you very much so again about the financial situation excluding the impact of the fee structure revision implemented the last year Your top line in first quarter is growing. Looking ahead, do you see this positive trend continuing?

Yeah, as you pointed out, our Q on Q revenue increase is very promising. So, as we explained, our clinic operation, underlying clinic operation performing well. And as the underlying activity accelerates our top line, naturally, re-accelerate as a function that structures linkage, there will, of course, be some kind of variability, seasonal changes. But on a smooth basis, we are confident that in the overall direction from here. So, we expect the underlying growth profile of the business to become more visible as the year progresses and the YOY impact of the last year's fee structure revision rolls off.

Thank you very much. So, next question is regarding the growth margin. Growth margin was lower than expected in first quarter 2026. through offset by lower SG&A. What level of gross margin and operating margin do you expect throughout the rest of the 2026, see after?

Basically, we are considering the margin will be stable and will be improved over the time. As we explained in our last presentation, we are now promoting the AI initiative to deliver the two benefits. So one is our top right growth, so by improving our customer experiences. And also, second one is enabling us to build a linear, more efficient organization. So on the cost side, so there will be some, so over the medium to long term, our intention to improve our profitability. So in that sense, over the year, we expect our margin will be stable and improved.

Thank you very much.

So next question is regarding the cash position. you have a substantial cash position on the balance sheet how are you thinking about the deployment of the cash growth cash going forward yeah uh thanks for very good question uh obviously as we uh continuously iterate to this point uh gross investment is a pop our priority So we will continue to invest with discipline to build a more competitive group of businesses because basically a number of clinics that we are supporting is a kind of KPI for our revenue and profit. So now we are very fortunate to be seeing a steady inflow of potential very great M&A opportunities because of intense competition and especially in the Japanese aesthetic medical market. So at this moment, we cannot disclose anything completely, but I think the benefit from the inorganic M&A opportunities over this year and the next year will be better promising, I think.

Thank you very much. Let me back to the clinic situation again. have you seen any measurable improvement in franchisee profitability retention or unit economics following the fee structure change so can you say that again sorry sorry have you seen any measurable measurable improvement in franchisee uh profitability or unit economics following the fee structure changes basically regardless of the our fee structure changes our you know clinic performance and our clinics of

profitability is remains of very good and the purpose of the fee structure was to enable our clinics groups to open more new types of clinics so in that sense our as you can see number of clinics are growing steadily over this water again so i think the uh the effect of the uh feedstock send uh um made a good effect on our uh clinic level profitability yeah thank you very much so next question is a this is a slightly long questions

talk bridge is now deployed across all shonan beauty clinics locations with in-house interpretation center are scaling towards 800 plus sessions per month. What inbound KPIs should investor track? Visit volume, conversation from the English inquiry pipeline, per visit spending, differential versus domestic, and how is a higher spend inbound mix flowing through the review per visit. The first full quota of the partnership are complete. Can you provide a general operational update on the collaboration? More importantly, what the potential for the bilateral cross-border deployment, bringing Orange tourist locations into Asia through SBC's network, and deploying SBC plans or the operating model in the US through Orange tourist footprint, and what's the timeline for that biolatical expansion? um okay uh so let me put this way uh as for the uh first part of the question regarding the uh basically inbound customers for sbc uh medical group uh actually uh we don't have a concrete

number here today so i think we included uh the uh information and the intelligence of the inbound customers' data next time. But from the revenue perspective, the ratio of the inbound tourist revenue is still very relatively small, but the growth rate is very big now. So we see a very great growth opportunities so we are implementing a variety of measures for example we had a kind of a conference that uh invite our one of the our doctor to china and to have a Chinese customer in the mainland China to explain our expertise in the treatment. That sort of initiative are working well. And so with that, the number of inbound customers are increasing. And as for the second part of the question, regarding our partnership, yeah, especially for the US strategy, Yeah, as you pointed out, our US strategy is basically centered on building value through our collaboration with Orange Sist, rather than passing large-scale standalone expansion from the end. So, yeah, as you mentioned, our initiative includes collaboration, a variety of collaboration, and that consists of three parts, basically. First is marketing support. We see a meaningful room to improve customer acquisition, retention, and overall brand execution at Orange Seas. So part of our focus is helping the brand awareness and acquiring new customers. And the second one is AI implementation support. we see they had a very, how can I say, potential to improve the cost by utilizing the AI. And the third one is our longevity clinics proof of concept. So now we are planning and considering implementing longevity treatment in a selected location of Orange Seast Med Spa. And, yeah, as you mentioned, our collaboration idea includes the Orange Seast, how can I say, exporting Orange Seast Midaspa business clinic group to Asia globally. But at this moment, we don't have a concrete timeline. So, because as I explained, now we are focusing on three corporation items now. So, in the long term, we think we are considering importing the orange juice brand to Asian countries or even Japan, maybe.

Thank you very much. Next one is also the global businesses. Can you talk about U.S. M&A valuations and whether you see near-term opportunities for strategic transactions?

Yeah, I think, as you know, compared with the valuation in the Japanese M&A market, the valuation in the U.S. is relatively expensive. So, from the EBITDA multiple perspective, basically over five times and sometimes over 10 times. But basically, we think it's reasonable to acquire the Medispa group, potentially, I mean, with EBITDA multiple over from five to eight times.

Thank you very much. Next one is also international businesses. Overseas remains 1% of clinical revenue, with a phase 2 roadmap targeting the US and Southeast Asia for 2027 to 2028, beyond orange twists, which Southeast Asian markets are highly priority. what's a preferred mode of entry direct operation joint venture franchise medical tourism partnership and when should investor expect overseas to become more meaningful a contributor to consolidated revenue um yeah thank you for a very good uh question uh actually we think uh

Kind of partnership with Orange to East could be the model as to how to expand our business into the global, including Southeast Asia. So partnership model could be one of the prioritized approach to dig into the Southeast Asia. because you know uh especially aesthetic medical market is a very uh domestic uh and affected by the each culture in the customers preference so that's why we need our professionals and x uh expert uh who knows how much about the local market so in that sense uh partnership model would be the would be better rather than you know with deploying the large-scale standard expansion yeah that's what we are currently considering but as you know depending on the inorganic M&A opportunities we are very open to yeah direct M&A and having the direct medical clinics group in South Asia so it depends yeah on this station thank you very much so could you discuss a trend in ability spend per customer and whether pricing optimization continue to support ARPU growth yes as we explained in the last couple of earnings release you know we saw the very intense competition in the Japanese aesthetic medical market so that's why we are very strategically changed our price of our treatment uh treatment by treatment basis but uh uh as we explained we think uh it hit the bottom and uh we are now kind of enjoying the okay i say uh benefit of survivors and uh as a largest aesthetic medical clinic group we kind of uh power to control the overall price of the our treatment now so of course uh we need to care about the customer's satisfaction that's our first priority but uh we increase uh the price of some treatment gradually and then even with that uh the as you can see the number of customers increasing so that's why uh we successfully improving our abilities revenue power visit and profitability thank you very much so uh can you uh elaborate on how the multi-branding strategy is uh evolving and whether a newer brand attracting different demographic or price point segments Yes. As I pointed out, we are implementing a multi-brand branding strategy. And for example, we opened a new skin clinic that are focusing on more customers with high literacy of aesthetic medical. and especially those who want to go to korea to take the up-to-date treatment so with that we introduced up-to-date medical device including the laser devices so yeah with that with those efforts we are successfully attracting customers with high literacy of the aesthetic medical yeah that's sort of initiative according to working uh not only the new skin clinic we acquired uh medical clinic groups called june clinic that uh focusing is more, how can I say, not known, how can I say, with low medical aesthetic literacy actually. Yeah, on the other hand, on the contrary to the new skin printing. So that sort of multi-branding strategy works very well to capture the diverse customer needs, as I explained. thank you very much so this is a profitability questions as you continue to uh as you continue to roll out ai across the organization is it fair to assume that the ebitda margin is on the upward trajectory from here short answer is yes uh because uh Due to the nature of aesthetic medical clinics group, our business is basically kind of labor-intensive business model until so far. But we believe AI has meaningful potential to improve our productivity and reduce operating costs over time. So, yeah, more concretely, our priority is to start with areas where implementation is relatively simple and return can be verified quickly. It's a kind of quick win project. For example, we see internal manual research as a short term quick win because actually we have a wide variety of treatment to capture customer needs. So in that sense, we have a lot of internal manuals, but from the counselor or nurse perspective, it's difficult to find the appropriate manual by their hand. So in the sense, we can utilize AI. And more broadly, we have already taken disciplined approach to hiring at headquarters, including the principal-based force on some mid-to-carry hiring. So with that, you know, from the cost reduction perspective, we also believe there's substantial room to streamline operations through automation and workflow redesign over time. So, yeah, in a short answer, yes. we can reduce our cost and improve much. Thank you very much.

So next question is regarding the cash. You established a share repurchase program at the end of last year.

Can you share your thinking on how you plan to utilize uh this program going forward uh okay so i think we we cannot uh concretely uh tell what we're gonna do in the next field uh but uh uh from our point of view we believe the situation has uh drastically improved compared to where we were previously uh i mean when we established the share repurchase program as i explained and as you can see our revenue increase i mean the underlying revenue increased and our profitability remains are improving so from our point of view that our priority is to uh improve our liquidity so in that sense a share repurchase program by its nature reduces the fraud that's what uh some investors pointed out to us and we uh duly understand that point so we do not uh view it i mean the salary process program as a high priority tool at this stage instead we plan to continue working on liquidity through expanding analyst coverage building our institutional investor base and pursuing proactive ir engagement and so on yeah so we do everything to improve our equity and increasing our fraud that's all that's what we're considering now thank you very much so next question is also the capital strategy do you envision additional uh founder share sales in 2026 if so uh what size i'm timing yeah uh actually you know saying the founders portion is a decision uh should be done should be made by our founder basically that's a basic uh concept and but uh even with that uh yeah as just i just explained uh increasing our liquidity and the number of floating seas is our top priority in the sense we are very open to any idea to uh contribute to increase our floating seas and our liquidity yeah i think that's what we can say now thank you very much so yeah uh are there any further questions uh if not uh we conclude our q and a session yeah thanks so uh thanks for joining us and thanks for giving the very good questions uh again we are very committed to uh improve our liquidity in the floating series and improving for uh profitability so as you can see it uh the very uh big improvement of q on q basis now so uh really look forward to uh discussing with you again uh in the near future thanks so much thank you very much so this concludes uh on today's briefing thank you again and have a wonderful day.

Thank you very much. Goodbye. Goodbye.