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 video to learn more.

Speaker 4

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 NISDAC 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 brands 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. That is also noted 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. 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 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 EBITDA demonstrated solid underlying growth. Let's return to where we are heading. Everything we are building points towards one central idea, longevity, helping people stay healthier and feel younger for longer. We approached this opportunity from two sides, the appearance side through our aesthetic 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 healthier 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 Tree 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 expounding 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. SBC 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 clinic directly. SBC therefore operates as medical service organizations, providing comprehensive operating providing 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 a highly asset right, clinic lease rather than own real estate, and source expensive medical equipment from SVC headquarters on a leasing basis. thanks to sbc brand strength and marketing support in japan a newly opened clinic reached profitability in just five to six months on average compared to more than one year typical for the the noble clinics in the broader market perhaps the strongest signal single data point on the uh durability of this model not a single medical corporation has ever terminated its franchise agreement with sbc in our 26 years 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 uh thank you very much uh from uh 2024 uh into early 2025 uh the japanese uh aesthetic market so heavy uh new uh uh have a new and many new entrants uh attracted by the sector profitability intensity intensifies 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 and durability is intact i mean the 72 percent repeat rate and 94 percent of monthly visit in december 2035 came from existing customers on resilience during covet 19 our business access actually expanded and a tighter japanese regulation in 2035 has uh if anything strength our relative position versus smaller less dupli duplined competitors who can't meet the higher operating world wonderful thank you for that tell us what are the major growth engines that drive svc from here going forward yeah i think we see the growth coming from two layers within Japan on top of which sits global expansions. Number one, continued expansion of core acidic medical market. Two structures tailwinds. First, a sharp 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 trust in japanese brands and the current effects 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 unsent. We are applying our asset operating playbook to other categories, such as AGA treatment, dentistry, orthopedics, fertility treatment, and ophthalmology.

Stephen Rogers, Other

We are also building corporate benefits b2b channel turning employee into a new customer acquisition route particularly effective in under penetrated categories wonderful let's talk about the u.s how are you approaching the u.s market and what have you learned from your earlier u.s attempt hey hey steven you're happy happy to chat through that um thanks thanks for having us um i'm steven 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 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 u.s 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 um 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 um 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 um when you go in um and we just really fell in love with with the culture of the company their dedication just to um you know excellence in terms of the customer experience and it just fit really well with um with with our values um and so we've partnered 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 um here in the us 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 um 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 um you know having a stronger presence here in the u.s and other markets perfect 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

Hikaru Fukui, Head of Investor Relations

Yeah, thank you very much. One of our features 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 huge data. So we utilize that huge data to sharpen, to make the stronger marketing activity or develop very enhanced back office platform and also we can utilize it to the 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 our profitability is also should be improved. So I am very excited to such change. great wonderful and so with a substantial cash position on the balance sheet how are you thinking about capital allocation yeah thank you very much uh our at our first priority uh we would like to utilize that huge cap uh huge huge cash and capital to the to invest in the further growth, including the organic growth and inorganic growth as well, domestically and internationally. And since everybody understands that we have a strong appetite to invest in further growth, and also we have a huge cash as well. So fortunately, we received the many such informations so on our table we have several options and we are see carefully investigate which option fits our business strategy and our culture and potential financial contribution uh as well uh and uh and uh and we also deploy uh deployed uh two uh expertise in united states of course one of them is uh stephen rogers and they are now uh searching the such new opportunity so stephen do you have any comments to add oh yeah so i think the cash position that

Stephen Rogers, Other

we have is incredibly strong and you know 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 and how we want to invest um because our core business is so strong so uh like like hikaru said we'll 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 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 U.S. 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 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, feel like really works best for us, you know, and making sure we're feeling really confident about where we're going.

Operator

Perfect. And let's talk about the current valuation discount. What are you doing to close it?

Hikaru Fukui, Head of Investor Relations

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 United States. uh yeah recently we invest we made a minority investment in the orange twist uh this last december but uh our u.s business is very limited so so only few uh u.s investors is aware of sbc so so one of our challenge is improving uh visibility in united states so under last uh Last year, Maxim and the BTIG kindly initiated their report about the 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 IEL conferences in United States. So I will visit to join such IEL conferences. Yeah, this is my challenge.

Operator

Great. Sounds fun. Let's close with this question and either of you can answer.

Hikaru Fukui, Head of Investor Relations

What do you believe SBC will look like from five years from now in terms of clinic count, revenue and profitability? yeah thank you very much uh i think uh we we we have a big potential uh to grow small and uh in historically uh we opened our first clinic in 2000 and so it means that we have already 26 uh years as a history and uh we successfully expand our network and our revenue more than percent on a basis and uh 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 as for the margin, profit margins, I think at this moment, our EBITDA margin is more than 40%. I think that it's still a very high profitability.

Stephen Rogers, Other

But 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 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 percent and to be one of the major growth engines for the business so really excited about a lot of the opportunities there and what lies ahead wonderful well thank you both for this presentation

Operator

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 be back soon with our next presenter