ELAN Corporation Q4 FY2024 earnings call

Corporate & Strategic Milestones

• In October 2024, M3 completed a TOB for Elan, acquiring 55% of outstanding shares, making Elan a consolidated subsidiary of M3 Group. Mutual cross-selling to both firms' hospital and facility clients has already begun, with multiple tentative deals secured, and medium-to-long term synergy planning is underway.
• Elan achieved 14.7% YoY revenue growth (top-line increase) but a 2.4% YoY operating profit decline, resulting in an operating margin of 7.5%. The profit decline is driven by one-time costs: 0.8 billion yen in cost recognition for the 200-facility rollout of original patient apparel

The firm now reports results segmented into Domestic and Overseas: 1. Domestic: Contributed nearly 100% of full-year 2024 revenue, with 14% year-over-year revenue growth. Core business is the CS Set inpatient service, with 2,570 total contracted facilities as of end-2024 (10.8% YoY growth), and 458,189 average monthly users (8% YoY growth). 2. Overseas: Only includes results for GREEN Co., the acquired number-one hospital laundry service in Ho Chi Minh City, Vietnam, for the 2024 Q4 period only. Includes 20 million yen in goodwill amortization allocated to the Vietnam segment. GREEN's Q4 2024 operating margin is high because pre-acquisition costs are not included; the full-year expected operating margin is 11%. A second acquisition, TMC Co. (the leading laundry service in Hanoi, Vietnam), completed M&A and will begin consolidation in 2025 Q1. Elan holds 100% ownership of GREEN and 51% ownership of TMC.

• 2025 full year consolidated revenue is targeted at 59 billion yen, representing 24.2% YoY growth. Large profit growth is expected because 2024's one-time M&A and TOB-related costs will not recur in 2025.
• Domestic revenue is targeted to grow approximately 20% YoY in 2025.
• The 2025 dividend is forecast at 15 yen per share, up from 13 yen per share for 2024, maintaining the 30% payout ratio target; management plans to gradually increase the payout ratio as overseas and new businesses mature.
• The 2023-2025 medium-term management vision's 2025 final year targets have been updated, changing the segmentation from CS Set/other to domestic/overseas; the prior market penetration rate target has been withdrawn after revising target facility classification and scope.
• Elan Logistics targets 450 delivery client facilities by end-2025, up from 376 at end-2024.

• The overall contract cancellation rate increased to 3.7% (100 total cancelled facilities) in 2024, driven by increased customer outflow to competitors (74 of 100 cancellations). Hospital closures and consolidations (19 cancellations) are expected to continue increasing in the future, further pressuring cancellation rates.
• Monthly user growth has slowed relative to contracted facility growth, due to high-stabilized CS Set utilization at existing facilities and a trend toward smaller new contracted facilities, which may limit near-term top-line acceleration from new facility gains.
• New geographic expansion and push into smaller long-term care facilities carries unproven market demand, and product adaptation is required to meet the specific needs of these smaller end-of-life care facilities, which are closer to home care settings.

Q: What is the target number of facilities for lifte rollout in 2025? / A: Management set the same rollout target for 2025 as 2024, which was 200 facilities in 2024. This maintains the aggressive expansion pace for the premium patient apparel line that received positive customer feedback in its first full year of rollout.

Q: What is the current status and outlook for the discharge and at-home care set business? / A: The discharge set product is currently in pilot testing. The at-home care set has already launched at multiple facilities. Management plans to scale the at-home care set first, then structure the business to integrate discharge and at-home care offerings for a cohesive end-to-end patient service.

Q: When can synergies from the M3 Group combination be expected? / A: Synergies will materialize on different timelines across the multiple planned collaborative initiatives. Some initiatives have already started delivering positive results as of the 2024 year end. Management will announce details of medium-to-long term initiatives as they are finalized, and investors should expect visible synergy gains starting in 2025.