SBC Medical Group Holdings Inc Q1 FY2026 Earnings Call

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 the 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 dollar while this represents a nine percent 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. the fee structure revisions of 8.7 million dollar and further adjusting for the 1.3 million dollar difference in AHH consolidation period, underlying revenue grew 211 percent year over year. Similarly, excluding the fee structure revisions of 8.7 million dollar, underlying EBITDA grew plus 117 percent 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 and a session to submit question please click the q and a icon at the bottom of your screen type your question and send it to us so uh first question is uh regarding uh clinic revenue growth and competitive environment uh quick revenue grew significantly year over year this quarter and including second clinic sales do you view this as a sign that the competitive environment has started to normalize

okay i answered the question uh overall i think yes uh 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 began to recover so our priority priority is to follow the strengths in 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

yeah basically yes uh we uh basically view uh fiscal year 2025 or last year as a transition year uh they put the company on a healthier footing so we think reported revenue decline due to restructuring and fee structure changes but as you can see now our profitability improved and the overall earning 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 are 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 structure 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 of last year's fee structure revision

rolls off thank you very much so next question is regarding the gross margin gross margin was lower than expected in first quarter 2026 through offset by lower sg and 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 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. on the cost side so there will be some uh so over the medium to long term uh our intention to uh improve our profitability so in that sense uh over the year uh we expect our uh margin will be

stable and improved thank you very much uh so next question is uh 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 this point uh gross investment is a pop our priority so we will continue to invest uh with discipline to build a more competitive group of businesses because uh uh basically number of uh clinics that we are supporting is a kind of kpi uh for our revenue and uh profit so now uh we are very fortunate to be seeing our city info of potential very great m and a opportunities uh because of intense the competition and especially in the japanese aesthetic medical market so uh at this moment we cannot disclose anything uh completely but uh uh i think uh the benefit from the inorganic m and a opportunities uh over the this year and the next year will be better from promising i think thank you very much

let me back to a clinic situation again have you seen any measurable improvement in franchisee franchisee profitability retention or unit economics following the fee structure change sorry can you say that again sorry i'm sorry have you seen any measurable measurable improvement in franchisee uh profitability or unique economics uh following the fee structure changes

uh basically regardless of the our fee structure changes uh our you know clinic performance and our clinics profitabilities remains very good and the purpose of the feed 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 quarter again so i think the uh the effect of the fixed exchange made a good effect on our clinical level of profitability.

Thank you very much. So next question is a slightly long question. Talkbridge is now deployed across all Shonan Beauty clinics locations with an in-house uh interpretation center are scaling towards 800 plus sessions per month what inbound kpis should investor track visit volume canvas conversation from the english inquiry pipeline per visit spending differential versus domestic and how is the higher spend in bad mix following through the review per visit. The first full quota of the partnership complete. Can you provide a general operational update on the collaboration? More importantly, what's the potential for the bilateral cross-border deployment, bringing orange tourist location as uh into asia through sbc's network and deploying sbc plants or the operating model in the us through orange twist footprint and what's the timeline for that uh bio radical expansion

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 medical group. Actually, we don't have a concrete number here today, so I think we'll include the information and the intelligence of the inbound customers' data next time. but uh uh the from the revenue perspective uh the ratio of the environment tourist leaveny is uh still very relatively small but our growth rate is very big now so we see a very great uh growth opportunities so we are implementing a variety of measures for example we had a kind of uh conference that uh invite our one of the our doctor to china and the two 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 invent customers are increasing and as for the second part uh of the question regarding our partnership uh yeah especially for the u.s strategy uh yeah as they pointed out our u.s strategy is basically centered on building value through our collaboration with orange this rather than passing a large scale standalone expansion from dm so uh yeah as you mentioned uh our initiative include uh collaboration a variety of collaboration and that conscious three parts basically first is marketing support we see a meaningful room to improve customer acquisition retention and overall brand execution at orange feast so part of our focus is helping uh the brand awareness and uh acquiring new customers and the second one is uh ai implementation support uh we see uh they had a very how can i say a potential to improve their cost by utilizing the ai and the third one is our longevity uh clinics proof of concept so uh now we are planning uh and considering uh implementing uh longevity treatment in a selected uh location of orange Seast Medaspa. And yeah, as you mentioned, our collaboration idea includes the Orange Seast, how can I say, exporting the Orange Seast Medaspa 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 yeah we think we are considering the uh importing the orange juice brand to asian countries or even japan maybe

thank you very much uh next one is also the uh global businesses uh can you talk about us m and a valuations and whether you see near-term opportunities for strategic transactions

uh yeah i think as you know compared with the variation in the japanese uh m and a market or the variation in the us are as relatively expensive so uh so from the ebta multiple perspective or basically over five times and sometimes over ten times but uh basically we think uh it's reasonable to acquire the medispa group uh potentially i mean uh with the ebta multiple over from the 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 U.S. and Southeast Asia for 2027 to 2028, beyond orange twist, 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 contributor

to consolidated revenue yeah thank you for a very good question uh actually we think uh kind of partnership with orange days could be the in a model uh how as to how to expand uh our business into the global including southeast asia uh so partnership model could be the one of the uh prioritized uh approach to dig into the southeast asia because you know uh especially aesthetic medical market is a very uh domestic uh and uh but affected by the each culture in the customers preference so that's why we need our professionals and ex uh expert uh who knows much about the local market so in that sense uh partnership model uh would be the uh would be better rather than, you know, 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 direct M&A and having the or direct medical clinics group in South Asia, so it depends on the situation. Thank you very much.

Could you discuss trends in average 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, treatment by treatment basis. But as we explained, we think it hit the bottom and we are now kind of enjoying the benefit of survivors. And as a largest aesthetic medical clinic group, we have kind of power to control the overall price of the treatment now. So, of course, we need to care about the customer's satisfaction. That's our first priority. But we increase the price of some treatment gradually. And then even with that, as you can see, the number of customers increasing. So that's why we successfully improving our ability to revenue power visit and profitability. Thank you very much.

So, can you elaborate on how the multi-branding strategy is evolving and whether newer brands are attracting different demographic or price point segments?

Yes, we are implementing a multi-brand branding strategy, and for example, we opened a new skin clinic that focuses on more customers with high literacy of aesthetic medical, and 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 those efforts, we are successfully attracting customers with high literacy of the aesthetic medical. Yeah, that's sort of the initiative currently working. uh not only the new skin clinic we acquired uh medical clinic groups called june clinic that uh focuses on uh more i guess uh not not uh no i'm gonna say with low uh 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 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.

Due to the nature of aesthetic medical clinics group, our business is basically kind of labor-intensive business model. until so far but uh we believe ai has meaningful potential to improve our productivity and release operating cost over time so yeah more concretely our priority is to start with areas where implementation is relatively simple and the return can be verified quickly uh it's a kind of quick wing project for example we see internal manual research as a short term quickly because actually we have a wide variety of treatment to capture customer needs so in that sense we have a lot of internal manuals uh but uh from the uh 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 a disciplined approach to hiring at headquarters including the principle based force on some meat 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 short answer yes we can reduce our cost and improve much thank you very much so next question is uh regarding the uh

uh uh uh you guys need the uh cash uh uh you established uh sorry uh share by back uh you established uh share repurchase program at the end of last year uh can you share uh 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 uh as you can see uh our uh revenue increase uh i mean underlying living increased uh and our profitability uh remains uh improving so uh from a 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 share repurchase 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 liquidity and uh increasing our fraud that's all that's what we're considering now thank you very

much so next question is also the uh capital strategy uh 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 i think 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 our for uh profitability so as you can see it uh the very 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 today's briefing thank you again and have a wonderful day thank you very much goodbye