Good afternoon, everyone. Welcome to the Sidoti Year-End Conference. And with me today, I have SBC Medical Group. I'm pleased to welcome Hikaru Fukui, the Head of IR at SBC. SBC trades under the ticker SBC on Nasdaq. And with that, Hikaru, I will let you take over. Thank you.
Thank you very much, Ash. Hi, everybody. I'm Hikaru Fukui, Head of IR of SBC Medical Group Holdings. Thank you very much for joining our conference call today, despite your busy schedule. I will now walk you through our results for the third quarter of 2025 and the progress of our businesses and the capital policy as well. At first, I'd like to touch on our group structure. SBC primarily provides comprehensive management support services to franchise clinics with a focus on aesthetic medicine. We generate income through franchise fee. While aesthetic medicine remains our primary area of focus, our franchise clinics have expanded their offering to include a comprehensive range of specialized medical services, including orthopedics, ophthalmology, thorough treatment, and infertility treatment. This diversification allows us to meet a broader spectrum of customer needs, enhance customer retention, and further strengthen our positions.
Let me begin with the current status of franchise clinics. Our network is almost 260 globally, mainly in Japan. The annual number of customers continues to increase steadily and has now expanded to approximately 6.5 million. Meanwhile, amid intensified competition in the domestic market, the average revenue per customer visit temporarily declined, but the turnaround has already begun. We have provided more detail on this on the next page. The graph on the left shows a quarterly trend, average spend per customer. As you can see, thanks to initiatives such as pricing and promotion strategy optimization, and our multi-branding strategy in the dermatology segment, which has successfully captured higher spending customer groups, the overall average revenue per customer visit is clearly showing signs of recovery. We intend to sustain this positive trend by accurately capturing customer needs and continuing to provide high-quality, high-satisfaction services.
Next, our financial performance for the third quarter of 2025. Sales had declined through the second quarter due to business restructuring and a revision to franchise fee, but have since bottomed out, supported by an increase in point-related revenue. Additionally, the decline in listing-related costs, including share-based compensation expense, contributed to upturn in both operating income and net income. From here, we aim to place the company firmly back on the sustainable growth trajectory. I would like to update our current business. Our first step, entry into Thailand, is through partnership with Bright Asia. We have entered into a consulting agreement with BrightAsia, a company with more than 10 years of experience and a network of over 20 pharmacies and clinics, mainly in Thailand. By deepening our collaboration with BrightAsia, we will accelerate our full-scale entry into Thailand's rapidly growing aesthetic medical market.
Recently, we announced the commencement of a tender offer to acquire a majority stake in WAKU, which engaged in R&D for regenerative medicine and skincare products, with the goal of making it a subsidiary. By combining the strengths of both companies, we aim to enhance the speed and innovation of our R&D and expand new treatment and unique service offering in clinic areas such as AJA and orthopedics. Through this initiative, we seek to strengthen the group's overall competitiveness and achieve sustainable growth for both companies. Next, our financial foundation. We maintain a sound and robust financial base with sufficient cash and deposit. To further accelerate growth, building strong relationships with financial institutions is essential. Recently, we utilized bank financing for working capital purposes. Our ample liquidity will continue to be actively deployed for strategic initiatives, including both organic growth and M&A in Japan and overseas.
Finally, regarding our capital policy, we recognize that the liquidity of our shares is still low, making it difficult for many institutional investors to trade. To address this, we will work on improving supply and demand and pursue measures such as new share issuance and partial sales of shares headed by our CEO, Yoshiyuki Aikawa. This will help create a more investment-friendly environment for a broader range of investors. That concludes my presentation. Thank you very much for your attention.
Thank you so much, Hikaru. Thank you for doing the presentation. We really appreciate it. And I have a few questions that I would like to ask you. Can you tell us a little bit about what your core revenue drivers are expected to accelerate revenue in 2026, and which segments are expected to return to growth post-restructuring?
Thank you very much for the question. Okay. SBC's revenue is primarily generated through franchise fee. Because of this structure, breaking down growth by very small fee components is not particularly meaningful. Instead, I believe it is more useful to look at which business area within our franchise clinic will drive growth going forward. There are three main segments where we see strong potential. First, the aesthetic dermatology segment. This is one of our fastest growing markets. This is one of the fastest growing markets globally, and we expect steady demand and continued expansion in this field. Second, the medical domain within Japan, including areas such as orthopedics and related treatment. We see solid long-term demand here due to demographic trends and the nature of procedures. Third, the international businesses. We plan to continue building our overseas platform. However, we intend to expand carefully.
In each country, we need to identify a clear winning model before scaling. Therefore, we are not assuming rapid and aggressive expansion immediately, but we do believe this area will be an important contributor over the mid-term to long-term our businesses.
Right. No, that makes sense, and can you talk to us a little bit about your competitors and how SBC's services or SBC as a brand is differentiated from the other aesthetic clinics in Japan or in the metropolitan area?
Yeah, thank you very much. Yeah. In this Japanese aesthetic medical market, we hold an overwhelming market share of approximately 25%, giving us a strong advantage in revenue scale, number of customers, and brand trust. Overall, we place a higher value on customer satisfaction. Our goal is to provide services that exceed the price a customer pays and turn them into long-term fans of SBC. We believe this philosophy is reflected in our 72% repeat visit rate. We also take great pride in the quality of employee education and training programs. These high-quality training efforts attract strong talents and directly translate into excellent customer services. We believe this is a significant competitive advantage that can't be easily duplicated by other companies.
Right. And during the presentation, you said, "Now is the right time for SBC." Why do you think 2026 is the year for SBC? Just trying to understand if you can give us any color on what the year looks like for SBC?
Sure. We believe we have returned to a stable growth trajectory after completing our business restructuring initiative and revising our fee structure to build a linear, more sustainable organization. As mentioned earlier, we have been systematically implementing various initiatives to win in the increasingly competitive market, and our average customer visit has begun to increase. Our financial performance generally lags behind that of our medical corporation partners. While fluctuation may occur, we are confident about our future performance. By continuing to deliver highly satisfactory services to our customers, we aim to drive improvements in customer spend and overall profitability.
Right. And if you can just tell us a little bit about what is happening in the U.S. side of the business? You were looking to expand on the U.S. side. So if you can just give us your progress and what are the developments that have happened in the previous few months, that would be great.
Yeah. First of all, overall, we have deployed two corporate development specialists in the United States. And the U.S. team continues to explore opportunities in areas that strongly align with SBC's strengths and offer meaningful scalability. Examples include the med spa sector, as well as upstream businesses that could later expand into other regions. We also recognize the need to deepen our understanding of the U.S. market, and we plan to move forward carefully, potentially beginning with a minority-invested market, managed risk, while building market knowledge.
Right. And while we are talking about international expansion, can you tell us how we should think about revenue contribution from Thailand expansion with Blaze in 2026? And do you expect a meaningful ramp next year or more of it to come from 2027 even?
Sure. Our expansion in Thailand will be built around our partnership with BrightAsia. At this stage, however, our arrangement is limited to a consulting agreement, and the associate fee represents only a small contribution to SBC's overall result. To generate meaningful revenue, we first need to confirm a successful business model in the local market and then scale that model across multiple locations. This will take time. Therefore, while Thailand remains a strategic opportunity, we don't expect significant revenue contribution in 2026. More meaningful impact is likely to come later once we achieve proof of concept and begin a broader rollout.
Right. And similarly for WAKU, what are your expectations for revenue synergies in 2026? Will we be seeing any cross-selling or upselling at WAKU, or is it more, again, of a 2027 revenue?
Sure. The tender offer remains open until this Friday, and our immediate focus is simply to monitor the process carefully. If the tender offer is successful, we will then begin a detailed discussion about our collaboration between them. At this moment, it is premature to provide specific synergy numbers or timelines. That said, WAKU has strong R&D capabilities, and we believe there is meaningful potential for collaboration once it becomes a subsidiary. Our goal is to build a mutually beneficial win-win partnership that enhances product development, brand strength, and customer engagement for both companies. We look forward to sharing more in the near future.
Right. Thank you so much. And one of the other questions I had was about risks and what to the 2026 outlook. Where do you see the biggest risks that SBC could face? Is it in execution? Is it clinical staffing, regulatory issues, patient demands? Where do you see yourself seeing a problem?
Yeah. We recognize several key risks that could affect our 2026 outlook. First, although average customer spend has recently recovered, there is still a risk that it may decline again. If this happens, the medical corporation we support could experience financial pressure. Second, the Japanese government may further tighten regulations on medical corporations, particularly as it focuses on securing human resources for the insured medical system. Any new restriction could have an impact on our clinical operation or growth. Third, while we aim to expand internationally, there is a risk that we may not quickly identify a winning business model in each market. If progress is slower than expected, this could limit the contribution from overseas operations. These are the main risks we are monitoring closely as we execute on our plan.
Right. And so can you tell us a little bit about what the early indicators you are monitoring that would cause you to revise your internal 2026 plans? And if you can just give us a broad outlook of how much growth are you expecting in 2026?
Sure. The two most important indicators we monitor are the number of franchise clinic locations and the total revenue of the medical corporations. Our growth depends heavily on the growth of these medical corporations. When we analyze their performance, we place particular importance on average revenue per customer visit, as it is a strong leading indicator of future financial trends. If we see a material change in these indicators, we will update our international plans accordingly. At this moment, we don't have a concrete plan, but 10%-15% growth in the number of clinics we expect. I think that a similar trend we can expect for our future financial performance as well as a baseline if there's no special factor. Yes.
No, that makes sense. And lastly, one of the questions I have is on the balance sheet. You have a very strong and a very conservative balance sheet. You've got about $180 million on your balance sheet in cash and cash equivalents and hardly any debt. So can you tell us what your capital allocation strategy is for the coming year? You already have a five-year share buyback, five million share buyback plan. So do you expect more share buybacks, or how does that work?
Yeah. Our highest priority continues to be growth investment, including domestically and internationally. Yeah, and this includes our existing businesses as well as investment in new areas and markets where we currently lack coverage. Domestically, we are exploring opportunities not only in aesthetic medicine but also across broader medical fields, and internationally, we have made progress in Singapore and are now evaluating opportunities in Thailand and other neighboring countries in Asia as well. The U.S. market is the largest and remains one of the most important opportunities for future expansion and growth, and we will continue to carefully assess opportunities as we advance our global strategy. Of course, other capital strategies, including the share buyback, are our options, and it definitely depends on our potential M&A opportunity or our share price or the communication with investors. Yeah, everything is on our options. But yeah, again, the highest priority is growth investment.
Right. Thank you so much. I think that's the end of our time here today, but I really appreciate you coming and sharing your story with us. And we look forward to seeing all the great things that SBC is going to do in the U.S. coming ahead. Thank you so much, Hikaru. Thank you. Thank you very much.
Thank you.