SBC Medical Group Holdings - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $43.36M, down 18% year over year, with EPS of $0.02 versus $0.20 last year; EBITDA was $15.19M (35% margin), reflecting fee revisions, business exits, and divestitures.
• Sequentially, results softened versus Q1 2025: revenue $47.33M, EPS $0.21, EBITDA $24.83M (52% margin).
• No formal numeric guidance was provided, but management expects growth to accelerate from Q3, citing stronger franchise network, high-repeat customer base, and new clinic formats (Neo Skin, JUN CLINIC) with higher average spend.
• Capital policy is the near-term stock catalyst: buybacks occurred May–July; company is considering new share issuance and a partial founder share sale to improve liquidity; added to Russell 3000 in June.
• Wall Street consensus estimates via S&P Global were unavailable for Q2 2025; accordingly, beat/miss vs Street cannot be assessed.*

What Went Well and What Went Wrong

• What Went Well

  • Procurement and rental revenues rose on higher purchase of medical materials and hair-removal device replacements; franchise footprint expanded to 259 locations, with LTM visits reaching 6.31M and repeat rate at 72%.
  • Launch of Neo Skin Clinic (April) gained rapid traction; JUN CLINIC joined the network and is expected to be a key growth driver with high average spend per customer; multi-brand strategy targets different segments with improved profitability.
  • Management reiterated confidence and expects acceleration from Q3, supported by higher-margin models, inbound medical tourism (China), and focus areas like Orthopedics and AGA where SBC targets leadership in Japan.

• What Went Wrong

  • Revenue declined 18% YoY driven by fee structure revisions, discontinuation of staffing services, and divestitures (SNA, Kijimadaira); EBITDA margin compressed to 35% vs 52% in Q1 and 53% YoY.
  • Elevated effective tax rate from non-deductible executive compensation and timing differences in aircraft sales recognition increased tax expense and reduced net profit; point redemptions reduced revenue, impacting management service revenues.
  • Average customer spending trended lower versus last year (early signs of recovery emerging); SG&A was temporarily elevated by laser purchases (~100 units) and professional fees tied to capital policy/legal matters.

Transcript

Speaker 0

It's time, so we would like to begin. Thank you very much for taking time out of your busy schedules now to join SBC Medical Group Holdings' earnings call. Today, our CEO, Yoshiyuki Aikawa, and our Vice President, Mr. Yoshida, will present our second quarter results, business progress, and capital policy. At the bottom of your screen, you will find a question box. If you have any questions, please answer them briefly and concisely. We will address them after the presentation. Now, I will hand over to Yoshiyuki Aikawa. CEO, Yoshiyuki Aikawa, the floor is yours.

Speaker 1

I'm Aikawa, CEO of SBC Medical Group Holdings. Thank you very much for joining our conference call today despite your busy schedule. I will now explain our results for the second quarter, progress of our business, and our capital policy. First, let me provide an update on our franchise clinics. In this July, June Clinic joined our network, expanding our total number of clinics nationwide to 259, an increase of 36 clinics since last year. In Japan's aesthetics medicine industry, the competition is severe. However, the customers are steadily increasing continuously with 6.31 million visits annually. This scale is unmatched in Japan. Against our foundation, our top priority is to ensure that every customer feels that they are receiving value more than what they pay for and make them become our repeaters.

As a result, even now, we are remaining a high repeat rate of 72%, and we believe this is our utmost strength. However, having said that, while average customer spending continues to trend at a lower level than last year, we are seeing early signs of recovery in certain areas such as a Guria Clinic. Moving forward with the highest share by far and with the high repeat rate, we would like to provide the treatment that matches the customer needs and provide the differentiation of our clinics. Next is our FY 2025 second quarter earnings. In 2024, we strategically restructured our business, exiting staffing services and deconsolidating some affiliates. Furthermore, in April this year, we also revised our franchise fees. As a result, total revenue declined 18% year on year. However, this is a strategic restructuring to ensure future growth, and the groundwork has been laid.

From the third quarter onward, we intend to accelerate growth. Elsewhere, increased point redemption by customers at our clinics reduced revenue, which in turn impacted management service revenues. On the other hand, procurement and rental revenues rose due to higher purchase of medical materials and replacement of hair removal devices. The elevated effective tax rate this quarter is mainly due to non-deductibility of some executive compensation and temporary timing differences in aircraft sales recognition between Japan and the U.S. More than what we have expected, the tax we had to pay in advance was higher. That is why the net profit became this way. This is a one-time advance payment of tax. It's how we understand this. Next, June Clinic has joined our network, and I would like to explain our business strategy progress. This July, we acquired MV Career Lounge, bringing June Clinic into our clinic network.

June Clinic operates six clinics across Japan and is known for customized laser treatments based on skin diagnosis provided by the doctors. From the variety of lasers, the doctors will combine the lasers and provide a personalized recipe to the customer, saying, "This is your matching treatment." That is the strength. The reason why we focused or had interest in June Clinic is that the way they diagnose the customers has characteristics, meaning that it is matching the current patient's needs. They provide a fixed pricing, meaning they receive, if it's ¥40,000, ¥40,000 upfront and will leave the treatment decision up to the doctor. Therefore, it had a unique characteristic. That is why we have contacted them and asked them to join our network. As I said right now, this combination of fixed pricing and personalization delivers high customer satisfaction and retention.

Also, the marketing cost is extremely low and is achieving high profitability. Moving forward, the June Clinic number is going to expand. Therefore, June Clinic will become a key growth driver for us. It's how I think. Next is turning to dermatological aesthetic medicine in Japan. The dermatological aesthetics, looking at the data, it is having a higher growth rate. Therefore, this is a promising field with significant growth potential. There is still room for us to further grow in this area as well. To respond precisely to diverse customer needs, we are implementing a multi-brand strategy tailored to different market segments. This April, we launched Neo Skin Clinic, targeting at expert-level customers with a focus on early adoption of global advanced treatments. Once we have opened this clinic, it has already gained such popularity that securing appointments is becoming difficult.

Up to now, we have been opening up different concept clinics. However, this Neo Skin Clinic has been the fastest ramping up clinic, and we have high expectations towards it. Moving forward, we would like to roll out this concept globally, not just keeping it in Japan. Average spend per customer exceeds that of our existing clinics. As I mentioned before, the June Clinic is also achieving an average spend per customer exceeding our existing clinics. These Neo Skin Clinic and June Clinic are going to become the two strong weapons for our future growth strategy. Moving forward, for the entry-level customers, we are preparing a new clinic format within the advanced countries. Japan, when it comes to the % of people receiving aesthetic medicine treatment, is low. Moving forward, we believe that the market is going to expand by twofold and threefold.

In order to achieve that, as the number one group in our industry, we would like to implement initiatives that will enable us to do so. For the people who are interested in aesthetic medicine, we would like to open up our doors. The self-funded medical care and insurance-covered treatments, because insurance-covered treatments is something that the customers are easier to visit the clinic. We are going to have a hybrid model aimed at those interested in beauty care with this combination. By satisfying reliability as a medical provider and interest in aesthetic care, we aim to develop a new customer base and expand our aesthetic medicine.

Speaker 0

Nature brand is clearly positioned with the strength in enabling us to build a strong presence in the non-surgical aesthetic segment. We are also strengthening support for franchise clinics in response to market changes. Specifically, we advise on shifting to higher margin models and support their implementation. Two clinics completed such transition in the first half, showing clear financial improvements. Three more clinics are currently undergoing similar transformations, contributing to stable medium to long-term operations. Currently, Yen is weakening, so there are many inbound tourists coming to Japan. We are focusing on and enhancing our medical tourism business. We are particularly focused on the Chinese tourists, enhancing local reach through the popular platform, Reddit, including interpreters, and hosting events in Shanghai. These initiatives have yielded strong results. Next, orthopedics and Androgenetic Alopecia (AGA) treatments.

Both are the high growth and high margin areas, so we will concentrate on the management resources moving forward. For example, in orthopedics, we are expanding from short-statured treatment into joint pain therapy and rehabilitation in response to aging demographics. To expand our business, Japanese aging society is advancing. Auto business is going to be the business which has the high growth potential. We are ranked on the seventh right now in Japan. I think that we can increase the number of clinics from 7 to 100 moving forward. Fertility in the business is another important business area. Our hair loss services include medication, transplantation, and laser therapies. This is a comprehensive approach that sets SBC apart as most AGA clinics focus only on medication. We are offering a comprehensive treatment. That is our strength.

In Japan, we are ranked on the second place in terms of the market share in Japan. Within this year or next year, we now try to be number one. Our target within 10 years in auto, fertility, and AGA, we want to be the number one market leader in those areas in Japan moving forward. In our international business, we are currently enhancing our structure. In the U.S., renowned plastic surgeon, Dr. Steven Cohen, joined as an advisor. In April, Steven Rogers, previously employed by Amazon and Rakuten, with experience in business development and M&A, joined as the Head of International Strategy. In Singapore, where we acquired Aesthetic Healthcare Holdings Pte. Ltd. last year, we have launched the Japanese language services to better serve the local Japanese community. We are planning to expand our business.

We have also welcomed Shinya Inoue, our marketing leader with a track record at P&G, Eli Lilly, and Adobe, as the Chief Marketing Officer to drive global branding and marketing. Next, financial base. We continue to maintain a robust financial base with sufficient cash on hand. These funds will be actively invested in both domestic and international organic growth, as well as strategic growth opportunities, including M&A. That's our aspiration. Next, please. Finally, regarding our capital policy, we recognize that liquidity in our shares remains limited, making trading difficult for many institutional investors. To address this, we are working to improve the supply-demand balance and are considering new share issuance and partial sales by the founder. These steps aim to improve accessibility for a broader investor base. From May to July, we conducted our first-ever share buybacks, which we believe contributed positively to our share price and liquidity.

In June, we were added to the Russell 3000 Index, which we understand will further enhance our visibility and liquidity. Going forward, we will continue to monitor market conditions closely and take appropriate timely actions. This concludes my presentation. Thank you very much for your attention.

Speaker 1

CEO, Mr. Aikawa, thank you very much. Now, from the participants, we have been receiving many questions, so we would like to answer them in order. The first question, the new clinics you are opening them up, many of them, are the new clinics starting up as planned? The male customers, are you seeing an increase in that? Please go ahead. First of all, the newly opening clinics this year, we are seeing a steady visit by customers. The Guria Clinic and Esthederm Luze, we are opening up the new clinics continuously. As for the male customers, we are seeing a large number of them visiting our clinics, and we are seeing an increase in that number. Compared to the female customers, the male customers, the growth rate, we believe, has a lot of potential because there's not that many that are entering the market.

Speaker 0

Next question, pricing strategy. Future pricing trend, what is your perspective? Would you continue offering a fixed? I mean, would you continue to see the decreasing in price or the price will be stabilizing? What is your take? As has been explained, we are taking multi-brand strategies. Shonan Bio Dermatology offers relatively reasonable price with a high turnover. When it comes to June Clinic or Neo Skin Clinic, those are positioned in the mid-range to the high-range prices. Customers' needs are focused on the high quality within a high price. The other group of customers prefer to have more accessible service. To meet those needs, we have a respective pricing strategy. Thank you.

Speaker 1

I would like to move on to the next question regarding the growth strategy, is what I would like to know. The organic growth and inorganic growth, including M&A, can you explain about that? What are your thoughts on this? First of all, as I have mentioned before, obviously, the orthopedics area is June Clinic AGA. The net increase basis in the market areas where we have a potential to grow, we're going to proactively open up new clinics. What was the other part of the question? The M&A side. Yes. Regarding M&A, we are conducting M&A almost every year. Even now, as we speak, we are finding good M&A deals. I can say this is one of the strengths of our group, which is that the clinics that we have acquired almost 100%. The clinics that are making losses after the acquisition turned into black ink.

The ones that were already making profits are further increasing their profitability. Therefore, moving forward, we would like to actively conduct M&A. Thank you.

Speaker 0

For M&A, for example, in regions, for example, in the U.S. or Asia or Japan, any geography or type of M&A, what are the targets? Currently, in North America, we are searching for a possible project. In Asia, Malaysia, Thailand, and Vietnam, as well as Indonesia, there are some offers. We don't intend to capture every opportunity, so we carefully scrutinize and select the possible M&A. We carefully examine the price as well as the business opportunities and decide. That's an important point. We scrutinize one by one. We are in the process. Thank you.

Speaker 1

Moving forward, for example, in Japan, how many clinics are you planning to open? About the pace of opening, we have about 260 clinics. On a clinical basis, within the next 10 years, we would like to open up to 1,000 for sure. Thank you.

Speaker 0

Future profitability prospect, could you share with us? Yes. We have been deploying in the business, and there are some variations of the margin level depending on the business. To meet the time, we will make sure to secure sufficient margin. Management resources are appropriately allocated or transform the business format. Those are important things. What we have been engaging in so far as for the establishment of the new clinic, it's estimated to be high margin. There is still the market and the capacity available to be able to open 100 or 200 clinics so that overall margin will improve. That's our prospect. Thank you.

Speaker 1

For example, the reduction of fee or one-time negative factors at this point is something that you can assume? At this point, do you think that all the bad factors or negative factors have been already taken care of? This time, there was the concentration in a way of the negative factors, so the results were not so good. Because of that, because we have gone down once, moving forward, we believe that it is going to improve and go upward again. We are already feeling that. Therefore, this time, as a one-time factor, it did go down, but this is something that we had to respond to. Thank you.

Speaker 0

Margin growth. It didn't grow much. SG&A slightly increased. In the second half, is it going to be normalized? Yes. We made a high level of investment for laser, for example, in the 100 units we bought. Those are the temporary expenditures we had in the first half. In the second half, not big. Investment is associated with the nature of our business, but we made a bold decision to make a big investment in the first half. I think that is going to be settled in the second half. Thank you. Yoshida-san, any other follow-up? If I may supplement, as a consolidated group, the consultation fees and the capital policy, legal fees were partially impacted on the performance and easy response as well. Those are the factors contributing to push up the SG&A. The 7%, the $12 million is year on year, and $15 million.

The $3 million increase is not a much bigger impact on our overall financial performance. Thank you.

Speaker 1

Next is a question regarding the outlook. This fiscal year's ending or the outlook for next fiscal year and the EPS several years from now, how is it going to grow? Can you comment on the future outlook of these?

Speaker 0

Towards our target, we need to steadily expand the business. Specifically speaking of how much of specific EPS growth we can achieve, to say that now is difficult. The track record, meaning for the last 25 years since we have started the business, the number of customers is continuously increasing. Though the surrounding environment is changing, we are rebuilding the businesses that will match this changing environment. Moving forward, we will enter the phase where the revenue is going to further increase. Mr. Yoshida, if you want to add, yes. As the listed consolidated group, at this point, we are not disclosing the EPS. On the other hand, from the investors, we are hearing voices that you would like to know such a guidance. We would like to continuously consider that.

I cannot disclose the specific numbers, but as I've been explained today, restructuring has been conducted and the one-time expense has all been spent. Therefore, moving forward, we will be improving the business. At some point, we would like to consider us disclosing the EPS as well. Thank you. Capital policy question. Looking at the current share price trend, the shareholder response or the share price matrix, probably we need to enhance more. What is your thought on that? Yoshida-san, please. Every time when we have the earnings call, we are putting emphasis on the capital policy, and particularly, we are working on to improve the liquidity. For that purpose, we have been considering matches. Since May this year, we conducted a share buyback and we saw some effect to some extent. As has been said, not just the share buyback, but the dividend payment is under consideration.

Meanwhile, again, business restructuring has been completed. Now we are entering into the phase of the growth investment. As Mr. Aikawa said, there are attractive M&A opportunities available in Japan and overseas. Shareholder return and growth investment, for those two, we will try to strike the good balance. Thank you. If I may add, this is Aikawa speaking. For the purpose of expanding our business, M&A is one of our strengths. There, we put focus on it to make a proactive investment to focus on the fundamental business growth. Ultimately, this will lead to the shareholder return as well.

Speaker 1

Thank you very much. Next question is that moving forward, the shareholding of the CEO, do you have any thoughts on selling them moving forward?

Speaker 0

As our challenge from most of the institutional investors, we are told that the liquidity of our shares is low. Issuing new shares or selling the shares that I hold, through that, the gains and proceeds from that, we would like in order for that to be used for the next investment, I think such a thing will be necessary to do. Thank you very much. I'm conscious of time. Mr. Aikawa, could you give the message now to the audience? Thank you very much indeed for kindly participating in this earnings call. We are still young. The sense is that establishment is in a quarter century. We are relatively new. Our strength is the spirit of never give up. What we have been envisioning has been thoroughly executed, and that is our strength. I thank you in advance for your continued understanding and support. Thank you very much.

Thank you very much. With this, we would like to conclude this earnings call. Thank you all very much for your kind attendance.