Later, we will begin with the presentation delivered by AI avatar. The content has been reviewed and approved 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 a $ 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 +11% year-over-year. Similarly, excluding the fee structure revisions of $8.7 million, underlying EBITDA grew +17% year-over-year. While the headline figures show a decline in both revenue and profit, I would like to emphasize that excluding the impact of the fee 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. First question is regarding clinic revenue growth and the competitive environment. Clinic revenue grew significantly year-over-year this quarter, including same clinic sales. Do you view this as a sign that the competitive environment has started to normalize?
Okay. I'll 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. 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. Our priority is to further strengthen customer trust and capture the underlying growth of the market. On top of that, we are also seeing a meaningful momentum in non-aesthetic categories such as AGA and dentistry. We see these as the adjacent area as promising growth domains. We intend to invest in scaling them in parallel.
Yes, thank you very much. Next question is regarding the fee structure. With the Q1 2026 QoQ plus 9% revenue growth, is the impact of early 2025 pricing market adjustment now over?
Mm-hmm. Yeah. Basically, I think yes. We basically view fiscal year 2025 last year as a transitional year that put the company on a healthier footing. We are seeing a reported revenue decline due to restructuring and fee structure changes. As you can see now, our profitability improved, and the overall earnings base 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. Again, about the financial situation. Excluding the impact of the fee structure revision, implemented last year, your top line in first quarter is growing. Looking ahead, do you see this positive trend continuing?
Yeah, as you pointed out, our QoQ revenue increase is very promising. As we explained, our clinic operation, underlying clinic operation are performing well. As the underlying activity accelerate our top line, naturally the accelerate is a function that structures linkage. There will of course be some kind of variability or seasonal changes, but on a smoother basis, we are confident that in the overall direction from here. We expect the underlying growth profile of the business to become more visible as the year progresses and the YoY impact of the last year's fee structure revision lowers off.
Thank you very much. Next question is regarding the gross margin. Gross margin was lower than expected in first quarter 2026, through offset by lower SG&A. What level of gross margin and operating margin do you expect throughout the rest of the 2026 hereafter?
Basically we are considering the 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 the two benefit. One is top line growth, by improving our customer experiences. Also, second one is enabling us to build a linear, more efficient organization on the cost side. There will be some. Over the medium to long term, our intention to improve our profitability. In that sense, over the year, we'll expect our margin will be stable and improved.
Thank you very much. Next question is regarding the cash position. You have a substantial cash position on the balance sheet. How are you thinking about the deployment of the cash going forward?
Yeah. Thanks for a very good question. Obviously as we continuously iterate to this point, growth investment is top our priority. We will continue to invest with discipline to build a more competitive group of businesses because basically number of clinics that we are supporting is a kind of a KPI for our revenue and profit. Now, we are very fortunate to be seeing a steady inflow of potential very great M&A opportunities because of intense competition in the, especially in the Japanese aesthetic medical market. I think the benefit from the inorganic M&A opportunities over the this year and the next year will be very promising, I think.
Thank you very much. Let me back to our clinic situation again. Have you seen any measurable improvement in franchisee profitability, retention or unit economics following the fee structure change?
Can you say that again? Sorry.
Sorry. Sorry. Have you seen any measurable improvement in franchisee profitability?
Oh.
Unit economics, following the fee structure changes?
Basically, regardless of our fee structure changes, our, you know, clinic performance and our clinic's profitability remains very good. The purpose of the fee structure was to enable our clinics groups to open more new types of clinics. In that sense, as you can see, number of clinics are growing steadily over this quarter again. I think the effect of the fee structure change made a good effect on our clinic level profitability.
Thank you very much. Next question is, this is a slightly long questions. Talk Bridge is now deployed across all Shonan Beauty Clinic locations with a in-house interpretation center scaling towards 800+ sessions per month. What inbound KPIs should investor track? Visit volume, conversions, conversation from the English inquiry pipeline per visit, spending differential versus domestic, and how is the higher spent inbound mix flowing through the revenue per visit. The first full quarter of the partnership are complete. Can you provide the general operational update on the collaboration?
More importantly, what the potential for the bilateral cross-border deployment, bringing OrangeTwist location as into Asia through SBC's network and deploying SBC plans or the operating model in the U.S. through OrangeTwist footprint? And what's the timeline for that bilateral expansion?
Okay. Let me put it this way. As for 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. I think we'll include the information and the intelligence of the inbound customers' data next time. From the revenue perspective, the ratio of the inbound tourist revenue is still very relatively small, but our growth rate is very big now. We see very great growth opportunities. We are implementing a variety of measures.
For example, we had a kind of a conference that invited one of our doctors to China and to have a Chinese customer in the mainland China to explain our expertise in the treatment. That sort of initiative is working well. With that, the number of our inbound customers are increasing. As for the second part of the question regarding our partnership, especially for the U.S. strategy, as you pointed out, our U.S. strategy is basically centered on building value through our collaboration with OrangeTwist rather than pursuing a large-scale standalone expansion from them. As you mentioned, our initiative includes collaboration, a variety of collaboration, that consists three parts, basically. First is marketing support.
We see meaningful room to improve customer acquisition, retention and overall brand execution at OrangeTwist. Part of our focus is helping the brand awareness and acquiring new customers. 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. The third one is our longevity clinics proof of concept. Now we are planning and considering implementing longevity treatment in a selected location of OrangeTwist med spa. Yeah, as you mentioned, our collaboration idea includes the OrangeTwist, how can I say, exporting OrangeTwist med spa business clinic group to Asia globally.
At this moment, we don't have a concrete timeline. Because as I explained, now we are focusing on three collaboration items now. In the long term, we think we are considering the importing the OrangeTwist brand to Asian countries or even Japan, maybe.
Thank you very much. Next one is also the global businesses. Can you talk about U.S. M&A valuations and whether you see near-term opportunities for strategic transactions?
Yeah. I think, as you know, compared with the valuation in the Japanese M&A market, the valuation in the U.S. is relatively expensive. From the EBITDA multiple perspective or basically over 5x and sometimes over 10x . Basically, we think it's reasonable to acquire the med spa group, potentially, I mean, with the EBITDA multiple over from the 5x to 8x .
Thank you very much. Next one is also international businesses. Overseas remains 1% of clinic revenue with a Phase 2 roadmap targeting the U.S. and Southeast Asia for 2027 to 2028. Beyond OrangeTwist, which Southeast Asian market are highly priority? What's the preferred mode of entry? Direct to operation, joint venture, franchise, medical tourism partnership, and when should investor expect overseas to become more meaningful contributor to consolidated revenue?
Yeah, thank you for a very good question. Actually, we think kind of partnership with OrangeTwist could be the, you know, model as to how to expand our business into the global, including Southeast Asia. Partnership model could be the one of the prioritized approach to dig into Southeast Asia because, you know, especially aesthetic medical market is a very domestic and, how can I say, affected by the each culture and the customer's preference. That's why we need professionals and expert who knows much about the local market. In that sense, partnership model would be the would be better rather than, you know, with deploying the large scale, standalone expansion.
Yeah, that's what we are currently considering. 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 Southeast Asia. It depends on the situation.
Thank you very much. Could you discuss trend in average spend per customer and whether pricing optimization continue to support ARPU and growth?
Yes, as we explained in the last couple of earning release, you know, we saw the very intense competition in the Japanese aesthetic medical market. That's why we are very strategically changed our price of our treatment by treatment basis. As we explained, we think it hit the bottom and we are now kind of enjoying the, how can I say, benefit of survivors. As our largest aesthetic medical clinic group, we are kind of power to control the overall price of the treatment now. Of course, we need to care about the customer satisfaction. That's our first priority. We increase the price of some treatment gradually.
The even with that, the, as you can see, the number of customer increasing. That's why, we successfully improving our, average revenue per visit and, profitability.
Thank you very much. Can you elaborate on how the multi-branding strategy is evolving and whether a newer brand attracting different demographic or price point segments?
Hmm. Yes. As you pointed out, yeah, we are implementing a multi-brand branding strategy. For example, we opened a NEO Skin Clinic that are focusing the more customers with high literacy of aesthetic medical and especially those who want to go to Korea to take the up-to-date treatment. With that, we introduced the up-to-date medical device, including the laser devices. Yeah, with that, with those efforts, we are successfully attracting customers with high literacy of the aesthetic medical. Yeah, that's sort of the initiative are currently working. Not only the NEO Skin Clinic, we acquired a medical clinic groups called JUN CLINIC that focuses on more, how can I say, non, how can I say?
With low medical aesthetic literacy, actually. On the other hand, on the contrary to the NEO Skin Clinic. That's how the multi-branding, branding strategy works very well to capture the diverse customer needs, as I explained.
Thank you very much. This is profitability questions. As you continue to roll 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 until so far. We believe AI has meaningful potential to improve our productivity and reduce operating cost 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. In that sense, we have lots of internal manuals. From the counselor or nurse perspective, it's difficult to find the appropriate manual by their hand.
In that sense, we can utilize AI. More broadly, we have already taken a disciplined approach to hiring at headquarters, including the principle-based pause on some mid-career hiring. With that, you know, from the cost reduction perspective, we also believe there's substantial room to streamline operations through automation and workflow redesign over time. Yeah, in a short answer, yes, we can reduce our cost and improve margin.
Thank you very much. Next question is regarding the cash. Share buyback. You established a share repurchase program at the end of last year.
Could you share your thinking on how you plan to utilize this program going forward?
Okay. I think we cannot concretely tell what we're gonna do in the next build. From our point of view, we believe the situation has drastically improved compared to where we were previously, I mean, when we established the share repurchase program, as I explained and, as you can see, our revenue increased. I mean, the underlying revenue increased, and our profitability remains improving. From our point of view, our priority is to improve our liquidity. In that sense, a share repurchase program, by its nature, reduces the float. That's what some investors pointed out to us, and we duly understand that point.
We do not view it, I mean the share repurchase program, as 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. We do everything to improve our liquidity and increasing our float. That's all, that's what we're concentrating now.
Thank you very much. Next question is also the capital strategy. Do you envision additional founder share sales in 2026? If so, what size and timing?
Yeah. Actually, you know, selling the founder's portion is a decision should be made by our founder, basically. It's like a basic concept. Even with that, as I just explained, increasing our liquidity and the number of floating shares is our top priority. In that sense, we are very open to any idea to contribute to increase our floating shares and our liquidity. I think that's what we can say now.
Thank you very much. Yeah, are there any further questions? If not, we conclude our Q&A session.
Yeah. Thanks, thanks for joining us, and thanks for giving the very great questions. Again, we are very committed to improve our liquidity and the floating shares and improving our profitability. As you can see, the very big improvement of QoQ basis now. Really look forward to discussing with you again in the near future. Thanks so much.
Thank you very much. This concludes today's briefing. Thank you again, and have a wonderful day. Thank you very much.
Goodbye.
Goodbye.