SBC Medical Group Holdings Incorporated

Thank you very much for joining the SBC Medical Group Holdings First Quarter Earnings Briefings today. Today's session will be led by Yue Yoshida, Director, CFO, COO, and AI Evangelist, together with myself, Hikaru Sukui, Head of IR Department, who will serve as the moderator. Thank you for being with us. We will begin with a presentation delivered by AI Avatar, The content has been reviewed and uploaded 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, totaling 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 111% year-over-year. Similarly, excluding the fee structure revisions of $8.7 million, underlying EBITDA grew 117% year-over-year. While the headline figures show a decline in both revenue and profits, 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 clinic sales. Do you view this as a sign that the competitive environment has started to normalize?

Okay, I will answer 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. 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, on top of that, we are also seeing a meaningful momentum in non-aesthetic categories such as AGEA and dentistry. So, we see this as the adjacent area as promising growth domains. And we intend to invest in scaling them in power.

Thank you very much. So next question is regarding the fee structure. With Q1 2026, Q2 plus 9% revenue growth, is the impact of early 2025 pricing market adjustment now over?

Yeah, basically I think yes. We basically view fiscal year 2025, last year, as a transition year that put the company on a healthier footing. So we think it reported revenue decline due to restructuring and fee structure changes. But as we can see now, profitability improved and the overrunning space became more normalized. In that sense, yes, you are right, we think 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 vision implemented last year, your top line in first quarter is growing. Looking ahead, do you see this positive trend continuing? Mm-hmm.

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

Thank you very much. So next question is regarding the growth margin. Gross margin was lower than expected in Q1 2026 through offset by lower SG&L. What level of gross margin and operating margin do you expect throughout the rest of 2026 and thereafter?

Basically, we are considering our 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 top-right growth, so by improving our customer experiences. And also, the second one is enabling us to build a linear, more efficient organization on the cost side. So, over the medium to long term, our intention is 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 about the cash position. You have a substantial cash position on the balance sheet. How are you thinking about the deployment of the cash growth and cash growing board?

Yeah, thanks for a very good question. Obviously, as we continuously iterate to this point, growth investment is a top 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 we are very fortunate to be seeing 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? Sorry, can you say that again? Sorry. Have you seen any miserable improvement in franchisee profitability or in its economy following the fee structure change?

Basically, regardless of our fee structure changes, our clinic performance and our clinic's profitability remains very good. And the purpose of the fee structure was to... enable our clinic groups to open more new types of clinics. So in that sense, as you can see, number of clinics are growing steadily over this water again. So I think the effect of the physical exchange made a good effect on our clinic level profitability.

Thank you. So, next question is a slightly long question. TalkBridge is now deployed across all Shonan Beauty Clinic locations, with the in-house interpretation center scaling towards 800 plus sessions per month. What inbound KPI should investors track? Visit volume, conversation from the English inquiry pipeline, per visit spending, differential versus domestic, and how is the higher spend in bad mix flowing through the review per visit. The first full quarter of the partnership is complete. Can you provide a general operational update on the preparation? More importantly, what's the potential for the bilateral cross-border deployment, bringing Orange Street location as into Asia through SBC's network and deploying SBC plants or the operating model in the U.S. through orange juice footprint? And what's the timeline for such biological expansion?

Okay, so let me put it this way. I saw the first part of the question regarding the basically inbound customers for SBC medical group. Actually, we don't have a concrete number here today, so I think we included the information and the intelligence of the inbound customers data next time. But From the revenue perspective, the ratio of the inventory to tourist revenue is still very relatively small, but our growth rate is very big now, so we see very great growth opportunities. So we are implementing a variety of measures. For example, we had a kind of conference that invited one of our doctors to China, and to have a Chinese customer in mainland China to explain our expertise in the treatment. That's sort of initiative 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 U.S. strategy, yeah, as I pointed out, our U.S. strategy is basically centered on building barriers through our collaboration with orange states rather than passing large-scale standalone expansion from there. 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 Chase. 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 have a very, how can I say, potential to improve their cost by utilizing the AI. And the third one is longevity clinics proof of concept. So now we are planning and considering implementing longevity treatment in a selected location of Orange Seas MediSpa. And yeah, as we mentioned, our collaboration idea includes exploring the Orange Seas Mid-Spar business clinic group to Asia globally. But at this moment, we don't have a complete timeline. 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-swiss brand to Asian countries or even Japan, maybe.

Thank you very much. Next one is also the global business. Can you talk about U.S. M&A variations and whether you see near-term opportunity for strategic transaction?

Yeah, I think as you know, compared with variation in the Japanese M&A, market, the valuation in the US is relatively expensive. So from the EBITDA multiple perspective, Basically, over five times and sometimes over ten times. Basically, we think it's reasonable to acquire the MetaSpark group, potentially, I mean, with EBT multiple over from five to eight times.

Thank you very much. Next slide, also international businesses. Overseas remains 1% of unique revenue, with a phase 2 roadmap targeting the U.S. and Southeast Asia for 2027 to 2028, beyond orange trees, which Southeast Asian markets are highly prioritized. What's the preferred mode of entry? Direct to operation, joint venture, franchise, medical tourism partnership, and when should investors expect overseas to become more meaningful contributors to consolidate its leverage?

That's a very good question. Actually, we think kind of partnership with Orange Taste 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, especially aesthetic medical market is a very – domestic and affected by each culture in the customer's preference. So that's why we need professionals and experts who knows much about the local market. So in that sense, our partnership model would be better rather than deploying the large scale sandalwood expansion. Yes, 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 direct medical clinics group in South Asia. So it depends on the situation. Thank you very much.

So, could you discuss trends in average spend per customer and whether pricing optimization continues to support ARPU growth?

Yeah. As we explained in the last couple of adding release, you know, we saw the very intense competition in the Japanese aesthetic medical market. So that's why we are very strategically changing our price of our treatment, treatment by treatment basis. But as we explained, we think let's hit the bottom and we are now kind of enjoying the benefit of survivors and as a largest aesthetic medical group we kind of power to control the overall price and the treatment now so of course we need to care about the customer satisfaction that's our first priority when 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 are successfully improving our availability for business and profitability. Thank you very much.

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

Yes. We are implementing a multi-branding strategy. For example, we opened a new skin clinic that focuses 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 devices, including the laser devices. Yeah, with those efforts, we are successfully attracting customers with high literacy of the aesthetic medical. Yeah, that's the initiative currently working. Not only the Neoskin Clinic, we acquired a medical clinic group called June Clinic that focuses on more, how do you say, with low medical and aesthetic literacy actually, on the other hand, on the contrary to the new skin training. So that's how the multi-branding strategy works very well to capture the diverse customer needs, as I explained.

Thank you very much. This is a profitability question. As you continue to load out AI across the organization, is it fair to assume that the EBITDA margin is on the upward trajectory from here?

Yeah, short answer is yes. Due to the nature of Aesthetic Medical Clinics Group, our business is basically kind of labor-intensive business model so far. But we believe AI has meaningful potential to improve our productivity and reduce operating costs over time. More concretely, our priority is to start with areas where implementation is relatively simple and the 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 that sense, we can utilize AI. And more broadly, we have already taken disciplined approach to hiring at headquarters, including the principal base force on some mid-career hiring. So with that, 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 uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh You established a shared repartus program at the end of last year. Could you share your thinking on how you plan to utilize this program going forward?

I think we cannot completely tell what we're going to do in the next field. From our point of view, we believe the situation has drastically improved compared to where we were previously. When we established the share repurchase program, as I explained and as you can see, our underlying revenue increased and our profitability remains improving. from our point of view, that our priority is to improve our liquidity. So, in that sense, a share repurchase program, by its nature, reduces the fraud. That's what some investors pointed out to us, and we do understand that point. So, we do not view I mean, the share repurchase program is 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 increasing our fraud. That's what we're considering now. Thank you very much.

So next question is also the capital strategy. Do you envision additional founder share sales in 2036? If so, what size and time?

Yeah. Actually, you know, sharing the founder's portion is a decision. uh should be done should be made by our founder basically that's a basic 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 that 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 set up. Thank you very much.

So, yeah, are there any further questions? If not, we conclude our Q&A session.

Yeah, thanks for joining us and thanks for giving the very good questions. Again, we are very committed to improve our liquidity in the floating series and improving our profitability. So, as you can see, there are very big improvements on QMQ basis now. So, we look forward to discussing with you again 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. Goodbye.