MEDIROM Healthcare Technologies Inc. (NASDAQ: MRM) (“Medirom”
or the “Company”), a holistic healthcare company based in Japan,
announced it filed its Annual Report on Form 20-F for the year
ended December 31, 2023 with the U.S. Securities and Exchange
Commission ("SEC"), including consolidated financial statements
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”), on June 18, 2024.
Kouji Eguchi, Chief Executive Officer of the
Company, stated, “I am very pleased to announce that during a
period of significant investment and development in our healthcare
technology systems and products in FY 2023 and FY 2022, as well as
recovering in a post-pandemic environment, we generated net profit
and positive adjusted EBITDA for two consecutive years. The
profitability of our directly-operated wellness salons, sales of 30
wellness salons, and growth of our digital wellness healthcare
technology app, Lav, primarily led to the net profit and adjusted
EBITDA in 2023. We believe remaining a profitable company while
developing and beginning to commercialize our healthcare technology
is a significant milestone for Medirom. In 2023, we focused on
further developing our digital wellness healthtech products and
services with the launch of full scale operations of the REMONY
Monitoring System. We continue to work to expand our B2B sales by
selling our healthtech systems and products as a health data
central management platform across the MOTHER Bracelet, MOTHER
Gateway, and REMONY Monitoring System.”
Summary of Consolidated Financial
Results for 2023
The following is a comparison of certain of our
operating results for the years ended December 31, 2023 and
December 31, 2022.
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(in
thousands, except change % data and Adjusted EBITDA
margin) |
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Year ended December 31, |
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Change (2023 vs 2022) |
Consolidated Statement of Operations: |
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2023($) |
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2023(¥) |
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2022(¥) |
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$ |
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¥ |
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% |
Revenues: |
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Relaxation
Salon |
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$ |
43,002 |
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¥ |
6,059,851 |
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¥ |
5,972,913 |
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$ |
617 |
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¥ |
86,938 |
|
1.5 |
Luxury
Beauty |
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4,029 |
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567,695 |
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594,761 |
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-193 |
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¥ |
-27,066 |
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-4.6 |
Digital
Preventative Healthcare |
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1,422 |
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200,397 |
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386,383 |
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-1,320 |
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¥ |
-185,986 |
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-48.1 |
Total
revenue |
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48,453 |
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6,827,943 |
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6,954,057 |
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-895 |
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¥ |
-126,114 |
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-1.8 |
Cost of
revenues and operating expenses: |
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Cost of
revenues |
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37,320 |
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5,259,075 |
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5,051,600 |
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1,472 |
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¥ |
207,475 |
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4.1 |
Selling,
general and administrative expenses |
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13,912 |
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1,960,447 |
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1,805,490 |
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1,100 |
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¥ |
154,957 |
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8.6 |
Total cost
of revenues and operating expenses |
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51,232 |
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7,219,522 |
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6,857,090 |
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2,572 |
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¥ |
362,432 |
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5.3 |
Operating
income (loss) |
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$ |
-2,779 |
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¥ |
-391,579 |
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¥ |
96,967 |
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$ |
-3,467 |
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¥ |
-488,546 |
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-504 |
Other income
(expenses): |
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Dividend
income |
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— |
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2 |
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2 |
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— |
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— |
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— |
Interest
income |
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8 |
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1,111 |
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6,072 |
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-35 |
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¥ |
-4,961 |
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-81.7 |
Interest
expense |
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-262 |
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-36,868 |
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-9,800 |
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-192 |
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¥ |
-27,068 |
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276.2 |
Gain from
sales of salons |
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2,936 |
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413,678 |
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— |
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2,936 |
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413,678 |
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— |
Other,
net |
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243 |
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34,278 |
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86,533 |
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-371 |
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¥ |
-52,255 |
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-60.4 |
Total other
income |
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2,925 |
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412,201 |
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82,807 |
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2,337 |
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¥ |
329,394 |
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397.8 |
Income tax
(benefit) expense |
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-670 |
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-94,427 |
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30,809 |
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-889 |
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¥ |
-125,236 |
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— |
Net income
(loss) |
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816 |
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115,049 |
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148,965 |
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-241 |
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¥ |
-33,916 |
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-22.8 |
Adjusted
EBITDA(1) |
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$ |
2,173 |
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¥ |
306,324 |
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¥ |
380,464 |
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$ |
-526 |
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¥ |
-74,140 |
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-19.5 |
Adjusted
EBITDA margin(1) |
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4.50 |
% |
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4.50 |
% |
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5.50 |
% |
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-1.0 |
(1) Non-GAAP measure. See the section below
captioned “Non-GAAP Measures” for more details, and see the table
below captioned “Reconciliation of non-GAAP measures” for a
reconciliation of Adjusted EBITDA to net income, the most
comparable U.S. GAAP measure.
Revenues
Revenues derived from our Relaxation Salon
Segment were JPY6,059,851 thousand (US$43,002 thousand) in the year
ended December 31, 2023 and JPY5,972,913 thousand (US$42,385
thousand) in the year ended December 31, 2022. The primary factor
for the increase in revenues from directly-operated salons between
2022 and 2023 was increased Sales per Customer. In 2022, our Sales
per Customer (based on information obtained from our salons for
which comparable financial and customer data are available) were
JPY6,627, as compared to JPY6,852 in 2023, which we believe is
primarily attributable to our new pricing introduced in 2023 and
the promotion of value-added services. In addition, we sold 30
salons to third-party investors in 2023 under the
sale-and-outsource business model. Revenue from our Digital
Preventative Healthcare Segment decreased by JPY185,986 thousand
(US$1,320 thousand) from JPY386,384 thousand (US$2,742 thousand) in
2022 to JPY200,397 thousand (US$1,422 thousand) in 2023. This
decrease was primarily due to delay in the development of our
REMONY® system and MOTHER Gateway device, with which corporate
customers can benefit from our SDK open policy and monitor health
conditions of a large number of MOTHER Bracelet® users, partially
offset with an increase in the number of participants in the Health
Guidance Program and launch of Lav® app services.
Cost of Revenues
For the years ended December 31, 2023 and 2022,
the cost of revenues was JPY5,259,075 thousand (US$37,320 thousand)
and JPY5,051,600 thousand (US$35,847 thousand), respectively. The
increase was primarily due to an increase in the cost of operation
of salons outsourced from investors corresponding to an increased
number of investor-owned salons, an increase in payroll of our
salon staff and an increase in outsourcing costs of contract-based
therapists, partially offset by decreased cost of franchising due
to a decrease in the number of franchisees and decreased unit costs
of the MOTHER Bracelet® due to a decrease in the number of MOTHER
Bracelet® units sold. The cost of revenues as a percentage of total
revenues was 77.0% during the year ended December 31, 2023 and
72.6% during the year ended December 31, 2022.
Selling, General, and Administration
Expenses
For the years ended December 31, 2023 and 2022,
the selling, general, and administration expenses were JPY1,960,447
thousand (US$13,911 thousand) and JPY1,805,490 thousand (US$12,812
thousand), respectively. Selling, general, and administration
expenses as a percentage of total revenues in the years ended
December 31, 2023 and 2022 were 28.7% and 26.0%, respectively. The
increase in 2023 was primarily due to increase in professional
fees, increase in advertising and promotion expenses, and increase
in payroll.
Interest Expense
Interest expense increased from JPY9,800
thousand (US$70 thousand) in 2022 to JPY36,868 thousand (US$262
thousand) in 2023, primarily due recognition of interest for a full
year with respect to the JPY500,000 thousand (US$3,548 thousand)
convertible bonds issued to Kufu Company Inc. in December 2022.
Income Tax (Benefit) Expense
Income tax benefit for 2023 was JPY94,427
thousand (US$670 thousand), compared to an income tax expense of
JPY30,809 thousand (US$219 thousand) in 2022. In 2023, we
reorganized our corporate structure and Medirom began to be able to
utilize its loss carryforward on a standalone basis with more
stabilized sources of earnings due to the reorganization. Based on
that, our recognition of valuation allowance over our deferred tax
assets of JPY625,615 thousand (US$4,440) was partial, resulting in
net deferred tax assets of JPY101,636 thousand (US$721 thousand) as
of December 31, 2023, compared to full valuation allowance of
JPY742,122 thousand (US$5,630 thousand) against our deferred tax
assets as of December 31, 2022.
Net Income and Adjusted EBITDA
Our consolidated net income in the year ended
December 31, 2023 was JPY115,049 thousand (US$817 thousand), or
1.6% of our consolidated revenue, while our consolidated net income
for the year ended December 31, 2022 was JPY148,945 thousand
(US$1,057 thousand), or 2.1% of our consolidated revenue, as a
result of the key factors described above. Our Adjusted EBITDA
decreased from JPY380,464 thousand (US$2,700 thousand) to
JPY306,324 thousand (US$2,173 thousand), resulting in a decrease in
Adjusted EBITDA margin from 5.5% in 2022 to 4.2% in 2023.
Non-GAAP Measures
Adjusted
EBITDA. We define Adjusted EBITDA as net
income (loss), adjusted to exclude: (i) dividend and interest
income, (ii) interest expense, (iii) gain from bargain purchases,
(iv) income tax expense, (v) depreciation and amortization, (vi)
losses on sales of directly-owned salons to franchisees, (vii)
gains (losses) on disposal of property and equipment, and other
intangible assets (viii) impairment loss on long-lived assets and
(ix) stock-based compensation expense. Management considers
Adjusted EBITDA to be a measurement of performance which provides
useful information to both management and investors. Adjusted
EBITDA should not be considered an alternative to net income or
other measurements under GAAP. Adjusted EBITDA is not calculated
identically by all companies and, therefore, our measurements of
Adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies.
We use Adjusted EBITDA to enhance our
understanding of our operating performance, which represents our
views concerning our performance in the ordinary, ongoing and
customary course of our operations. We historically have found it
helpful, and believe that investors have found it helpful, to
consider an operating measure that excludes certain expenses
relating to transactions not reflective of our core operations.
Stock-based compensation expense represents non-cash charges
related to equity awards granted by us. We recognized stock-based
compensation expense in 2021. Our management believes the
measurement of these amounts can vary considerably from period to
period and depend substantially on factors that are not direct
consequences of the performance of our Company and are not within
our management’s control. Therefore, our management believes that
excluding these expenses facilitates comparisons of our operational
results and financial performances in different periods, as well as
comparisons against similarly determined non-GAAP financial
measures of comparable companies.
The information about our operating performance
provided by this financial measure is used by our management for a
variety of purposes. We regularly communicate Adjusted EBITDA
results to our board of directors, and we discuss with the board
our interpretation of such results. We also compare our Adjusted
EBITDA performance against internal targets as a key factor in
evaluating our periodic operating performance at each salon level,
segment level, and consolidated level, largely because we believe
that this measure is indicative of how the fundamental business is
performing and is being managed.
Adjusted EBITDA Margin.
Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA
for a period by total revenue for the same period.
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Reconciliation of non-GAAP measures: |
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Year ended December 31, |
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(in
thousands, except Adjusted EBITDA margin) |
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2023($) |
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2023(¥) |
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2022(¥) |
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Net income
(loss) |
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$ |
816 |
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¥ |
115,049 |
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¥ |
148,965 |
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Dividend
income and interest income |
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(8 |
) |
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(1,113 |
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(6,074 |
) |
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Interest
expense |
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|
262 |
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36,868 |
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9,800 |
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Income tax
expense (benefit) |
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(670 |
) |
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(94,427 |
) |
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30,809 |
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Depreciation
and amortization |
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1,792 |
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252,595 |
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184,056 |
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Losses on
sales of directly-owned salons to franchisees |
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|
— |
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— |
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— |
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Losses on
disposal of property and equipment, net and other intangible
assets, net |
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(19 |
) |
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(2,648 |
) |
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12,908 |
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Impairment
loss on long-lived assets |
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— |
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— |
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— |
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Stock-based
compensation expense |
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|
— |
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— |
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— |
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Adjusted
EBITDA |
|
$ |
2,173 |
|
|
¥ |
306,324 |
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|
¥ |
380,464 |
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Adjusted
EBITDA margin |
|
|
4.5 |
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% |
|
4.5 |
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% |
|
5.5 |
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% |
Forward-Looking Statements
Certain statements in this press release are
forward-looking statements for purposes of the safe harbor
provisions under the U.S. Private Securities Litigation Reform Act
of 1995. Forward-looking statements may include estimates or
expectations about the Company’s possible or assumed operational
results, financial condition, business strategies and plans, market
opportunities, competitive position, industry environment, and
potential growth opportunities. In some cases, forward-looking
statements can be identified by terms such as “may,” “will,”
“should,” “design,” “target,” “aim,” “hope,” “expect,” “could,”
“intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,”
“predict,” “project,” “potential,” “goal,” or other words that
convey the uncertainty of future events or outcomes. These
statements relate to future events or to the Company’s future
financial performance, and involve known and unknown risks,
uncertainties and other factors that may cause the Company’s actual
results, levels of activity, performance, or achievements to be
different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking
statements. You should not place undue reliance on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond
the Company’s control and which could, and likely will, affect
actual results, levels of activity, performance or achievements.
Any forward-looking statement reflects the Company’s current views
with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to the Company’s
operations, results of operations, growth strategy and liquidity.
Some of the factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements in this press release include:
- the Company’s ability to achieve its development goals for its
business and execute and evolve its growth strategies, priorities
and initiatives;
- the Company’s ability to sell certain of its owned salons to
investors, and receive management fees from such sold salons, on
acceptable terms;
- changes in Japanese and global economic conditions and
financial markets, including their effects on the Company’s
expansion in Japan and certain overseas markets;
- the Company’s ability to achieve and sustain profitability in
its Digital Preventative Healthcare Segment;
- the fluctuation of foreign exchange rates, which affects the
Company’s expenses and liabilities payable in foreign
currencies;
- the Company’s ability to hire and train a sufficient number of
therapists and place them at salons in need of additional
staffing;
- changes in demographic, unemployment, economic, regulatory or
weather conditions affecting the Tokyo region of Japan, where the
Company’s relaxation salon base is geographically
concentrated;
- the Company’s ability to maintain and enhance the value of its
brands and to enforce and maintain its trademarks and protect its
other intellectual property;
- the financial performance of the Company’s franchisees and the
Company’s limited control with respect to their operations;
- the Company’s ability to raise additional capital on acceptable
terms or at all;
- the Company’s level of indebtedness and potential restrictions
on the Company under the Company’s debt instruments;
- changes in consumer preferences and the Company’s competitive
environment;
- the Company’s ability to respond to natural disasters, such as
earthquakes and tsunamis, and to global pandemics, such as
COVID-19; and
- the regulatory environment in which the Company operates.
More information on these risks and other
potential factors that could affect the Company’s business,
reputation, results of operations, financial condition, and stock
price is included in the Company’s filings with the SEC, including
in the “Risk Factors” and “Operating and Financial Review and
Prospects” sections of the Company’s most recently filed periodic
report on Form 20-F and subsequent filings, which are available on
the SEC website at www.sec.gov. The Company assumes no obligation
to update or revise these forward-looking statements for any
reason, or to update the reasons actual results could differ from
those anticipated in these forward-looking statements, even if new
information becomes available in the future.
About MEDIROM Healthcare Technologies
Inc.
MEDIROM, a holistic healthcare company, operates
307 (as of May 31, 2024) relaxation salons across Japan, Re.Ra.Ku®
being its leading brand, and provides healthcare services. In 2015,
MEDIROM entered the health tech business and launched new
healthcare programs using an on-demand training app called “Lav®”,
which is developed by the Company. MEDIROM also entered the device
business in 2020 and has developed a smart tracker “MOTHER
Bracelet®”. In 2023, MEDIROM launched REMONY, a remote monitoring
system for corporate clients, and has received orders from a broad
range of industries, including nursing care, transportation,
construction, and manufacturing, among others. MEDIROM hopes that
its diverse health-related product and service offerings will help
it collect and manage healthcare data from users and customers and
enable it to become a leader in big data in the healthcare
industry. For more information, visit https://medirom.co.jp/en.
Contacts
Investor Relations Team
ir@medirom.co.jp
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