Conference Transcript - SBC 2026-05-28

Operator

welcome back everyone next we have sbc medical group holdings incorporated trades on the nasdaq under the symbol sbc and is a medical services organization providing management support across a wide range of health care fields including advanced aesthetic health care dermatology orthopedics fertility treatment gynecology dentistry alopecia treatment and ophthalmology Serving 6.76 million customers annually, the group is driving AI strategy to lead the future of healthcare. And today we have with us Hikaru Fukui, head of IR, and Stephen Rogers, head of global planning and strategy. But before we get into it, let's watch this AI-generated presentation

Speaker 4

video to learn more. Thank you very much for joining us today, despite your business schedules. I will now present SPC Medical Group's business overview and financial results for the first quarter of 2026. Let me begin by explaining how SPC actually operates, because our model is somewhat different from what many people initially expect. We are a medical services organization, or MSO. We provide clinics with everything they need to operate efficiently, including marketing, procurement, technology, hiring, and training. Everything is managed centrally, which makes the model highly scalable. As the clinics grow, our earnings grow alongside them. Our flagship brand is Shonan Beauty Clinic, the largest beauty medical group in Japan. We founded the business in 2000, listed on NYSDAC in 2024, and are now ready to expand this proven model globally. SPC is not a single brand business. We have built a portfolio of brands covering a broad spectrum of beauty and medical services, ranging from quick, affordable treatments to high-end surgical procedures. In general healthcare, we also operate specialized brands in hair loss treatment, paratelic, orthopedics, eye care, and dental services. The reason behind this strategy is straightforward. Different patients have different needs. By offering the right brand for each segment, we can serve a broader market more effectively. In addition, patients often move between our plans over time, allowing us to maintain long-term relationships within our network. Next, let me highlight our clinic business. We currently operate 284 clinics, primarily in Japan, and serve 6.7 million customers annually. This extensive network and strong customer base provide a powerful foundation for sustainable growth and reinforce our leadership position in the market. Both the number of customers and average revenue per visit increased year-over-year, driving continued revenue growth, including solid growth at existing clinics. Going forward, we will continue enhancing our service levels through our multi-brand strategy, which enables us to address increasingly diverse customer needs with precision. Combined with the continual development of new services, we believe this will further strengthen our competitive advantage and support long-term growth. People often ask us if this model works so well, why has nobody else replicated it over the past 26 years? The answer is the loop we have built. When patients receive great care, they trust us. When they trust us, they come back. When millions of patients come back, we accumulate an enormous amount of data. That data improves our training, strengthens our AI capabilities, and sharpens our marketing, which leads to even better care. And the cycle continues. The key point is this. New competitors do not simply face a cost disadvantage. They face a 26-year data gap. You cannot buy your way out of that. That is a moat built over 26 years. Next, let me move to our consolidated income statement. Total revenue for the first quarter of 2026 was $43 million. While this represented a 9% year-over-year decline, the primary factor was a fee structure revision implemented in April of last year. This revision reduced franchising revenue by $6.2 million and management services revenue by $2.4 million for a total negative impact of $8.7 million. In addition, procurement revenue and rental services revenue declined year-over-year. Meanwhile, growth in point revenue partially offsets the decline in management services revenue. Still, please also note that net income attributable to SPC Medical Group declined year-over-year partly because the prior-year quota included a one-time life insurance surrender gain of $8.7 million. dollars. As mentioned earlier, the reported revenue decline was primarily attributable to the fee structure revisions, excluding the $8.7 million impact from those revisions, and further adjusting for the $1.3 million difference related to the AH consolidation period. Underlying revenue grew 11% year-over-year. Similarly, excluding the $8.7 million impact from the fee structure revisions. Underlying EBITDA increased 17% year-over-year. While the As the headline figures show declines in both revenue and profit, I would like to emphasize that excluding the impact of the prior year fee structure revisions, both revenue and eBiteDia demonstrated solid underlying growth. The return to where we are heading. Everything we are building points toward one central idea, longevity, helping people stay healthier and feel younger for longer. We approach this opportunity from two sides, the appearance side through our ethnic medical services and the physical health side through our general medical services we are pursuing this vision through four key initiatives and i will walk through each of them last year we launched spc wellness a health and wellness benefits program for corporate clients we are now preparing to take you to the next stage with spc wellness 2.0 this next phase is centered around one key concept longevity in the united states longevity medicine is already gaining significant momentum personalized health programs designed to help people perform at their best not simply treat illness in japan however no clear leader has emerged yet we intend to be first we believe we are uniquely positioned to lead this market we have accumulated 26 years of medical expertise built a nationwide clinic network and developed a large base of patient data together these assets create a platform that is extremely difficult for others to replicate by entering the market early with these advantages we believe we can establish a dominant position before the market fully develops we also believe the corporate channel is the most efficient way to scale this business by offering wellness 2.0 as an employee benefit sold directly to companies we can reach large populations without relying heavily on traditional marketing spending companies want healthier and more productive employees and we provide a compelling solution to support that goal We believe the fit is very natural on both sides. Our second growth initiative is expanding the operational capabilities we developed in aesthetic medicine into broader healthcare categories. There are three strengths we believe transfer effectively across medical fields. First, our marketing capabilities. We know how to attract patients and maintain long-term engagement. Second, our operational model. We have developed a standardized approach to clinic management. that scales efficiently across multiple locations. Third, our ability to provide both cash pay and reimburse care medical services within the same platform. We are already applying these capabilities in orthopedics, fertility treatment, and eye care, all of which are attractive and fast-growing healthcare markets that align naturally with our existing strengths. Turning to global expansion, our approach is disciplined and straightforward. Japan remains the strong foundation that supports everything else we do. We are not pursuing aggressive overseas expansion. Instead, we are expanding selectively, leveraging the operational model we have already proven in Japan. In the United States, we are partnering with Orange Twist, a premium medical spa group operating 24 locations. Orange Twist has deep expertise in the United States market and delivers an excellent patient experience. SPC contributes strong operational capabilities and an efficient clinic model. Together, we are opening new locations and building a presence in the emerging longevity market. Over time, we also expect to bring the best elements of the United States operating model back to Japan and other Asian markets. The final component of our strategy is AI, and this is fundamentally about transforming how we operate. Today, our business requires significant human labor to manage. As we continue to scale, that naturally becomes more expensive and more complex. Our solution is to leverage 26 years of patient clinic and operational data to build tools that do the heavy lifting for us, including automated bookings, smarter marketing systems, AI support for clinic staff, and 24-hour patient communication services. We are using AI to improve both sides of the business simultaneously, enhancing the patient experience to drive revenue growth, while also increasing operational efficiency to reduce costs. This is not an either-or strategy. We are pursuing both growth and efficiency at the same time. The result is a business that can scale more rapidly without increasing headcount at the same pace. Other companies may attempt to build similar AI tools. However, they do not have access to the data we have accumulated over 26 years. That is our lasting advantage. Let me conclude by returning to the six key reasons we believe SBC represents a compelling long-term opportunity. First, our track record. SPC is Japan's largest beauty medical group by a number of clinics. We started with a single clinic in 2000, and today we operate 284 locations across more than 20 brands. We serve over 6.7 million patients annually, and 72% of them return to us. That level of loyalty sustained over more than two decades is not accidental. Second, we have built a business model that is extremely difficult to replicate, supported by a 26-year operational and data advantage. Third, we generate strong profitability. Net income reached $51 million last year, up 9% year-over-year. Our EBITDA margin exceeds 40%, and we reinvest that cash flow back into future growth. Fourth, we believe we are still early in the development of Japan's longevity market, where no clear market leader has emerged. Fifth, we are now extending the operating model proven in Japan into international markets through partnerships and investments in Southeast Asia and the United States, including our strategic state in Orange West. And sixth, we have a strong management team. Our inclusion in the Russell 3000 Index in 2025 reflects our position as a well-managed and increasingly recognized public company. We believe SBC is uniquely positioned to lead the next generation of healthcare and longevity services, both in Japan and globally. Thank you very much for your time today.

Operator

All right. Thank you for that presentation, everyone. Let's jump in with some questions. First of all, talk about why you operate under a franchise model in Japan rather than running de novo company-owned clinics, and how does the revenue structure work?

Hikaru Fukui, Head of Investor Relations

Thank you very much for your questions. Under Japanese medical regulations, medical corporations are classified as non-profit entities and for-profit operating companies are not permitted to run clinics directly. SBC therefore operates as medical service organizations, providing comprehensive operating support to independent medical corporations and the franchise model. SPC itself doesn't perform a medical procedure. We provide marketing, recruiting, training, accounting system, and medical equipment resync. In return, we earn a franchise fee, combining a fixed and variable component, plus equipment lease income and revenue from consumable procurement. A key feature of this model is that it is highly asset-right, clinic lease rather than own real estate, and source expensive medical equipment from SBC headquarters on leasing basis thanks to sbc brand strength and marketing support in japan a newly opened clinic reached our profitability in just uh five to six months on average compared to more than one year typical for the uh the noble clinics in the broader market perhaps the strongest signal single data point on the durability of this model not a single medical corporation has ever terminated its franchise agreement with sbc in our 26 years

Operator

history wow good to hear uh let's talk about the multi-brand response and resilience your top line saw a slowdown last year but is now re-accelerating so tell us what happened and what did you do and how resilient is the business thank you very much from 2024

Hikaru Fukui, Head of Investor Relations

into early 2025 the japanese aesthetic market so heavy new have a new and many new entrants attracted by the sector profitability, intensified price competition. So average revenue per visit declined temporarily. In response, we moved away from excessive discount promotions and optimization pricing, and strengthening the management team such as new cmo and cso accelerates our multi-branding strategy assigning distinct brands to distinct customer segments to avoid internal cannibalization while capturing differentiated needs the results are showing up clearly in the number average revenue per visit reached 316 in fourth quarter, 2025, 11% up year over year. And first quarter, 2026, delivered revenue 11% up and EBITDA 70% up on the adjusted basis, excluding the impact of the last year fee structure revisions. Customer durability is intact. I mean, a 72% repeat rate and 94% of monthly visits in December 2035 came from existing customers. On resilience, during COVID-19 our business access actually expanded and tighter Japanese regulation in 2025 has if anything strength our relative position versus smaller less duplicated competitors who can't meet

Operator

the higher operating world. Wonderful thank you for that tell us what are the major growth engines

Hikaru Fukui, Head of Investor Relations

that drive svc from here going forward yeah i think we see the growth coming from two layers within japan uh on top of which uh since our global expansions uh number one uh continued expansion of our core aesthetic medical market uh two structures are tailwinds first sharpen rise in male customer who now accounts for more than 40 percent of our total customer base and the dramatic cyst from decay ago driven by men's focus brands such as gorilla clinic and the men's visa and the second inbound medical tourism supported by by trust in Japanese brands and the current FX environment. And number two, expansion into non-ethnic medical fields under the SBC Wellness 2.0 longevity theme. Japanese longevity market is estimated at approximately 34 billion US dollars, roughly 8.5 times the size of the asset maker market of 4 billion dollars, and it is still unscent. We are applying our asset operating playbook to other categories, such as AGA treatment, dentistry, orthopedics, fertility treatment, and ophthalmology. We are also building corporate benefits, B2B channel, turning employee into a new customer, acquisition route, particularly effective in under-penetrated categories.

Operator

Wonderful. Let's talk about the US. How are you approaching the US market, and what have you learned from your earlier US attempt?

Stephen Rogers, Other

Hey, Anna, Stephen, you're happy to chat through that. Thanks for having us. I'm Stephen, I'm head of our global planning and strategy. I focus primarily on expansion into the U.S. and some other global markets. um so on your question is what you know sbc entered the u.s market uh a few years ago um with some you know organic de novo clinics um that we built and um you know one of the things that i think that what we learned early on is one you know you can't copy and paste uh necessarily what we've done in japan and just try to bring it over to the u.s um you know we can't really follow that model. And we need to take a look at, you know, who are the who are the industry leaders in the US? And how can we better partner with them? You know, the model in Japan is purpose built for Japan, and it works really, really well. And there's still a lot of room for it to continue to grow. And it'll continue to do really, really well there. But trying to take that same model and just move it overseas is not really going to work for us. So now our strategy is focused on how do we partner with how do we find and partner with really great companies so we found orange twist orange twist is an industry leader in the med spa space specifically and in luxury so they do a lot of non-invasive treatments the experience there is is amazing when you go in and we just really fell in love with with the culture of the company their dedication just to you know excellence in terms of the customer experience and it just fit really well with with with our values and so we partner with them. We're helping them grow. And they'll really be our growth engine on the med spa space. And we're continuing to look for additional partners too in longevity and some other areas here in the U.S. So you'll continue to see some cool things happening there. And these will be relatively, you know, smaller positions. You know, the core growth of the business will still be in Japan. And this allows us to continue to look at unique opportunities in the U.S., kind of take multiple different bets, feel like we get a better understanding of where the market's going, and we can start to get smarter about it, you know, while we still protect our core business in Japan. So we're kind of taking a longer-term approach to it. So the next, you know, few years, you'll start to see more and more cool things happen. And then long-term, we're really excited about, you know, having a stronger presence here in the U.S. and other markets.

Operator

Thank you, Stephen. let's talk about AI so as you continue to roll out AI across the organization what's the impact how is it going to impact growth and margins yeah thank you

Hikaru Fukui, Head of Investor Relations

very much one was our feature is we have a huge customer as Anna mentioned at the beginning of the sessions at this moment we have roughly 6.7 million customers on annual basis. So it means we have a huge data. So we utilize that huge data to sharpen strong, to make a stronger marketing activity or develop a very enhanced back office platform. and also we can utilize it to improving our service level as well. So I think the AI adoption is a support to boost our business size itself and also since it makes our platform stronger, So I think that our profitability is also should be improved. So I am very excited to do such change.

Operator

Great, wonderful. And so with a substantial cash position on the balance sheet, how are you thinking about capital allocation?

Hikaru Fukui, Head of Investor Relations

Yeah, thank you very much. At our first priority, we would like to utilize that huge cash and capital to invest in the further growth, including the organic growth and the inorganic growth as well, domestically and internationally. and since everybody understands that we have a strong appetite to invest further growth and also we have a huge cash as well so fortunately we received many such informations So, on our table, we have several options, and we carefully investigate which option fits our business strategy, and our culture, and potential financial contribution as well. And we also deployed two expertise in United States. Of course, one of them is Steven Rogers, and they are now searching such new opportunity. So, Steven, do you have any comments to add?

Stephen Rogers, Other

Oh, yeah. So, I think the cash position that we have is incredibly strong, and I'd say it's very unusual for a company like this to have such a strong position and it just puts us in a really unique uh advantage you know we're in a really good position for you know growth and then we also have um you know a unique opportunity to kind of pick and choose um how we want to how we want to grow um and how we want to invest um because our core business is so strong so uh like like hikaru said, we'll continue to do acquisitions, clinic acquisitions in Japan, expanding our current scope. So we'll be looking to continue to grow into the medical field and continuing to grow into unreached kind of areas within Japan. A lot of our clinics are focused in highly dense demographic areas like Tokyo and Osaka, but getting broader reach out in the country, there's a lot of room opportunity there and then in the us too we're continuing to look for additional partnerships potentially some acquisitions and some other cool things um you know and then of course and we're also very interested in southeast asia we did the acquisition in singapore uh we have 24 clinics there um and so we're also very excited about you know expand the japanese brand is very strong in in that region um so there's a lot of cool opportunities in thailand and malaysia some other places so definitely a lot of opportunity on the horizon it's just a matter of you know picking and choosing what we feel uh feel like really works best for us um you know and making sure we're feeling really confident about about

Operator

where we're going perfect and let's talk about the current valuation discount what are you doing to

Hikaru Fukui, Head of Investor Relations

close it. Yes, thank you very much. Of course, it's very difficult to evaluate our variation by ourselves, but I personally think that compared with our financial performance, our share price is not, how can I say, gets an appropriate valuation from the market. And I consider that there are some challenges. One challenge is limited visibility in the United States. Yeah, recently we made a minority investment in the orange trees last December, but our U.S. business is very limited. So only a few U.S. investors are aware of SBC. So one of our challenges is improving visibility in the United States. So last year, Maxim and the PTIG kind of initiated their report about SBC. But we can say it's not enough. So I'm now trying to expand the analyst coverage, and I'm now discussing with several analysts as well. And also, of course, broadening the institutional investor base is also very important. And now I'm trying to have an IR meeting as much as possible. So, for example, in June and May, I joined the five IR conferences, and also in this September and October, there are many IR conferences in the United States, so I will visit to join such IR conferences. Yeah, this is my challenge.

Operator

Great, sounds fun. Let's close with this question, and either of you can answer. what do you believe SBC will look like from five years from now in terms of clinic count,

Hikaru Fukui, Head of Investor Relations

revenue, and profitability? Yeah, thank you very much. I think that we have a big potential to grow more and historically we opened our first clinic in 2000 and so it means that we have already 26 years as a history and we successfully expand our network and our revenue more than a percent on a bigger basis and we still we consider we still have a big uh still a big room to growth in japan as well and of course recently we are now trying to expand the international businesses mainly in united states and southeast asia so definitely our business area should be expanded and uh and as for the margin margin profit margins i think that at this moment our ebitda margin is more than 40 percent i think that it's still a very high uh profitability but uh yeah again utilizing the ai technology uh i think that we can maintain this high level uh profitability uh so yeah so that's my considerations steven do you have any

Stephen Rogers, Other

comments to add yeah i think from a global expansion perspective today uh our global business represents about one percent of our total revenue so it's very very small so i'd say in the next five years our goal is to get it to roughly 25 and to be one of the major growth engines for the business so i'm really excited about a lot of the opportunities there

Operator

and what lies ahead wonderful well thank you both for this presentation it's really been interesting learning more about svc medical group and seeing your expansion so we appreciate you guys joining us back on the conference today great thanks so much all right everyone stay with us we'll We'll be back soon with our next presenter.