F-1/A: MEDIROM Healthcare Technologies Inc. Files Amendment for Public Offering of American Depositary Shares

MEDIROM Healthcare Technologies Inc. has filed an amendment to its registration statement for a public offering of American Depositary Shares, aiming to raise capital for working capital and general corporate purposes.

Summary

• MEDIROM Healthcare Technologies Inc., a Japanese holistic health services provider, is planning a public offering of 1,661,130 American Depositary Shares (ADS).
• The company operates three main business segments: Relaxation Salons, Luxury Beauty, and Digital Preventative Healthcare.
• As of June 30, 2024, the Relaxation Salon segment had 308 locations across Japan, primarily in the Tokyo metropolitan area.
• The Luxury Beauty segment consists of ZACC, a high-end hair salon, and the Digital Preventative Healthcare segment includes a government-sponsored health guidance program and the MOTHER Bracelet.
• The company aims to expand its Digital Preventative Healthcare business and increase its profit margin.
• MEDIROM plans to acquire 70% of Japan Gene Medicine Corporation to grow its presence in the healthcare technology space.
• The company is also focusing on workforce optimization by increasing the proportion of commission-based therapists to improve margins.
• The company is also expanding salons located at spa facilities to minimize capital expenditures.
• The company is also pursuing targeted acquisitions of salon brands with at least 10 stores.
• The company is also growing salon sales via an operation outsourcing model, selling directly-owned salons to investors and managing operations on their behalf.
• The company is also increasing sales through marketing and advertising, including its Re.Ra.Ku app, which had 162,681 cumulative downloads as of June 2024.
• The company is also investing in and improving the functionality of the MOTHER Bracelet, which is a self-charging fitness tracker.
• The company has received purchase orders for over 25,000 MOTHER Bracelet units from business customers between July 1, 2024 and October 31, 2024.
• The company is also seeking to raise additional capital for its Digital Preventative Healthcare business through its subsidiary MEDIROM MOTHER Labs Inc.

Sentiment

Score: 4

Explanation: The document presents a mixed outlook. While the company has growth plans and innovative products, it also faces challenges such as increasing losses, delays, and competition. The need for additional capital raises concerns about the company's financial stability.

Positives

• The company has a strong brand value and a loyal customer base.
• The company has a large-scale education and training facility for relaxation therapists.
• The company provides innovative relaxation services, such as the wing stretch method.
• The company has a strong position for the continued growth of the Specific Health Guidance Program.
• The company has a unique Lav application for consumers, providing comprehensive support and physician-supervised guidance.
• The company has a unique MOTHER Bracelet, which is a self-charging fitness tracker.
• The company is strategically positioned to harness value from consolidation in the Japanese relaxation sector.
• The company is generating additional income from salons sold to investors and managed by the company.

Negatives

• The company's system-wide relaxation salon base is geographically concentrated in the Tokyo metropolitan area.
• The Digital Preventative Healthcare Segment has experienced development delays and setbacks.
• The company is vulnerable to changes in consumer preferences and economic conditions.
• The company faces significant competition in the relaxation and health technology industries.
• The company may be delayed in complying with its periodic reporting obligations under the Exchange Act.
• The company's Chief Executive Officer owns a golden share with key veto rights, limiting shareholders influence.
• The company may need to raise additional capital, which may dilute current shareholders ownership interests.

Risks

• The company may not achieve its development goals, which could adversely affect operations and financial results.
• The company is implementing new growth strategies, and any inability to execute could impact financial condition.
• Sales of salons to investors could vary from year to year, affecting annual revenue.
• Japanese and global economic conditions could adversely affect the company's expansion.
• The Digital Preventative Healthcare Segment may not continue to grow or achieve profitability.
• Component inflation may increase the cost of producing the MOTHER Bracelet and Gateway.
• The company's relaxation salon base is geographically concentrated in the Tokyo metropolitan area.
• Past and future acquisitions may fail to deliver anticipated benefits.
• The planned acquisition of Japan Gene Medicine Corporation may not be completed.
• The company may not be able to compete successfully with other relaxation salon businesses.
• Information technology system failures or breaches of network security could interrupt operations.
• The company is an emerging growth company with reduced disclosure and governance requirements.
• The company is a foreign private issuer and may follow home country practices instead of SEC and NASDAQ requirements.
• The company may be delayed in complying with periodic reporting obligations under the Exchange Act.
• The company's Chief Executive Officer owns a golden share with key veto rights, limiting shareholder influence.
• The requirements of being a U.S. public company may strain resources and divert management attention.

Future Outlook

The company plans to expand its Digital Preventative Healthcare business, increase the proportion of commission-based therapists, expand salons at spa facilities, pursue targeted acquisitions, and grow salon sales via an operation outsourcing model.

Management Comments

• The company believes that its services are viewed as a more necessary item of consumer spending that they expect will increase demand for their services given the strength of their brand.
• The company anticipates that its planned acquisition of 70% of the equity of Japan Gene Medicine Corporation will provide opportunities for them to grow their presence in the healthcare technology space and expand the portfolio of services they offer to their relaxation salon clients.

Industry Context

The relaxation sector in Japan is experiencing consolidation, with smaller operators selling their businesses, which presents opportunities for larger players like MEDIROM. The market is also seeing new entrants from athletic and personal training services, and body stretching.

Comparison to Industry Standards

• According to the 2022 Yano Report, MEDIROM is one of the top three companies in the Kanto region and in the top four nationwide in terms of the number of salons.
• The total number of relaxation salons under major brands in Japan was 2,944, with the largest operator having 613 salons, according to the 2022 Yano Report.
• The company's mid-term business plan goal is to operate 500 salons by the end of 2028.
• The company's Re.Ra.Ku app had 162,681 cumulative downloads as of the end of June 2024, with 11.7% of all reservations made through the app in June 2024.
• The company's MOTHER Bracelet is believed to be the only fitness tracker that requires no electric charging by utilizing the innovative technology of the Gemini TEG (Thermoelectric Generator) and Mercury Boost Converter.

Related Party Transactions

• Kouji Eguchi, the company's CEO, is a guarantor for some of the company's borrowings.
• Tomoya Ogawa, an independent director, is the sole owner of Kabushiki Kaisha LTW, which received consulting fees from the company.
• Akira Nojima, an independent director, is the sole owner of Kabushiki Kaisha No Track, which received consulting fees from the company.
• Osamu Sato, a corporate auditor, is a part-time employee of Ebis 20 Co., Ltd., which received consulting fees from the company.
• Kazuyoshi Takahashi, the representative director of ZACC, is the guarantor for some of ZACC's borrowings.
• COZY LLC, a company owned and controlled by Mr. Eguchi, implemented a stock repurchase plan and purchased 22,543 ADSs.

Stakeholder Impact

• Shareholders may experience dilution due to the potential capital raise.
• Employees may benefit from the company's focus on workforce optimization and career progression.
• Customers may benefit from the company's innovative services and expansion of its health and wellness offerings.
• Suppliers may benefit from increased demand for components and materials.
• Creditors may be impacted by the company's level of indebtedness and potential restrictions under debt instruments.

Next Steps

• The company plans to increase the number of directly-operated and franchised salons through new store openings and acquisitions.
• The company plans to increase the proportion of commission-based therapists to improve margins.
• The company plans to expand salons located at spa facilities to minimize capital expenditures.
• The company plans to pursue targeted acquisitions of salon brands with at least 10 stores.
• The company plans to continue growing salon sales via an operation outsourcing model.
• The company plans to enhance digital marketing initiatives and loyalty programs.
• The company plans to invest in and grow the Digital Preventative Healthcare Segment and increase its profit margin.
• The company plans to accelerate the production of its MOTHER Bracelet and expand its sales to businesses.
• The company plans to continuously invest in and improve the functionality of the MOTHER Bracelet.

Key Dates

Keywords

relaxation salons, digital preventative healthcare, MOTHER Bracelet, Japan Gene Medicine Corporation, franchise, luxury beauty, health technology, Re.Ra.Ku, Lav, wellness, therapists, acquisitions, capital raise