GENDA Inc. Q1 FY2026 earnings call

• Core 1Q Performance
  • 1Q 2026 IFRS KPIs significantly exceeded initial budget, putting GENDA on a strong starting track to hit full-year targets
  • Domestic Game Center and Karaoke segments are the primary drivers of overall company performance
  • Balance sheet improved markedly following an 18.4 billion yen public offering: Net Debt/EBITDA fell to 1.9x, down from the 2.5x forecast after the Player One M&A, and M&A activity has resumed
• M&A and North American Roll-up Strategy
  • Announced two new small-scale roll-up M&A deals in the U.S. amusement sector, bringing the company’s total M&A count since founding to 48
  • The two deals: 1) Acquisition of Barberio Music Company, which operates 12 game centers and 89 mini-locations primarily in high-footfall large commercial properties; 2) Purchase of ~1,100 mini-locations from VENUplus, which will be integrated with existing NEN operations to cut labor costs
  • Combined EV/EBITDA multiple for the two deals is 5.0x, an attractive fair valuation that management expects to fall further after PMI-driven profit growth and cost cuts
  • Post-acquisition, GENDA’s North American network totals over 13,000 amusement locations across the U.S. and Canada
• North American PMI Progress
  • SWAP (replacement with Kiddleton-style mini cranes and Japanese kawaii prizes) progress is on track, with sustained high same-store sales growth far outpacing domestic acquisition growth rates
  • Unplanned positive progress: 7 new Walmart locations secured (first new Walmart lease in NEN’s history, and first new NEN Walmart locations in 7 years), with new location openings outpacing closures, leading to monthly net location growth
  • Secured discounted game machine sourcing via Player One’s existing wholesale business, cutting input costs for NEN operations
  • Location tests for Kiddleton-style machines/prizes will start at 65 Player One locations this month, focusing on add-on placement in existing empty space (higher incremental sales efficiency than full SWAP)
  • Starting late June, GENDA will roll out exclusive limited-edition Japanese IP prizes (including Sanrio, Godzilla, and other popular anime IP) across its North American network, creating differentiation via rare, collectible products to drive new customer acquisition and higher visit frequency
• DX and Productivity Initiatives
  • Pursues a problem-driven DX strategy focused on eliminating waste and boosting productivity, rather than just technology adoption; currently rolling out DX to karaoke operations after completing initial work at GiGO game centers
  • DX changes to game center operations have cut 4,000 hours of monthly work: implemented mobile in-floor data entry, visual prize planning tools, and mobile access to real-time sales data to streamline operations
  • Developing in-house generative AI tools to solve common operational pain points across the group’s multi-location business, with one-time development delivering widespread efficiency gains
• Governance and Shareholder Engagement
  • Issued paid stock options that only vest if EBITDA grows 5x to 75 billion yen over 5 years, aligning management incentives with shareholder value creation and structurally discouraging reckless M&A
  • Expanded shareholder benefit options to include points exchange for DANZKA premium vodka, adding to existing options for GiGO and karaoke coupons and Kleiner Feigling products

GENDA’s 1Q 2026 results are led by the domestic Game Center and Karaoke segments, which drove overall company performance. Aggregate adjusted EBITDA for the quarter came in at 4.26 billion yen, beating the original budget of 3.81 billion yen by 11.9% and rising 29.2% year-over-year (an increase of 0.96 billion yen). Adjusted operating profit before goodwill amortization hit 2.51 billion yen, exceeding the 1.90 billion yen budget by 32.2% and growing 8.6% year-over-year (an increase of 0.2 billion yen). Adjusted net income before goodwill amortization reached 1.33 billion yen, beating the 1.11 billion yen budget by 19.4% but decreasing 13.1% year-over-year (a 0.2 billion yen decrease), which management notes is expected due to the full-year budget’s heavy weighting toward second half profitability. The North American amusement segment has delivered strong organic growth post-M&A: completed game machine/goods swap (SWAP) at 515 existing locations has delivered an average 110% increase in same-location sales, and new location openings are running at over 200 net new locations per month, with higher investment returns than SWAP. The foreign currency exchange segment (Smart Exchange) has delivered consecutive record monthly sales in March and April, with collected foreign currency used to fund North American M&A and European supplier payments, acting as a low-cost foreign currency sourcing channel for the group. No explicit revenue contribution percentages by segment are provided in the transcript.

• Management upwardly revised 2027 January fiscal year full-year guidance to incorporate the two newly announced M&A deals; the revised guidance assumes no additional M&A will be completed going forward
  • Revenue was raised from 183 billion yen to 185 billion yen
  • EBITDA was raised from 25 billion yen to 25.7 billion yen
  • IFRS net income was raised from 9.5 billion yen to 9.9 billion yen
• 2026 January fiscal year full-year guidance is maintained unchanged, due to the timing of P/L consolidation for the new M&A and expected one-time M&A-related costs
• Management expects the seasonal trend of heavier first-quarter underperformance and stronger fourth-quarter profitability to continue, as the proportion of smaller acquired stores (which have higher break-even ratios and typically lose money in Q1 while delivering full-year profits) grows

• Share price weakness has persisted driven by external factors including tariff news related to U.S. operations, public offering and secondary share selling, and investor concerns about the company’s high-growth M&A strategy and North American expansion plans, leading to a contraction in the company’s PER multiple to 16x from a historical range of ~30x
• There is investor skepticism about the sustainability of GENDA’s growth rate and returns from North American expansion and M&A, which management has acknowledged it needs to communicate more clearly about
• SWAP sales growth has stabilized from an initial 3x peak to an average 2x increase, which was in line with management expectations, though management continues to monitor performance closely

Q: How does GENDA view competing gashapon capsule toy expansion in North America as an anime goods sales channel, and do you see gashapon as a competitor or opportunity? / A: Management notes gashapon is a good channel for bringing Japanese anime goods overseas, and GENDA already operates its own gashapon business domestically with plans to expand it overseas. The two formats are not competitive, and instead create synergy: an existing example in Los Angeles sees adjacent Bandai gashapon and GENDA crane locations both deliver higher sales. Management expects crane games will become a larger market than gashapon in North America, similar to the domestic Japanese market.

Q: Why did EBITDA margin decline year-over-year in 1Q, and what is the driver of this weakness related to NEN? Is this temporary or a structural change? / A: There are two core causes. First, for NEN, unplanned high levels of new store openings and SWAP activity generated one-time non-capitalizable costs in the quarter that pulled down margins; these investments are the highest-return organic growth opportunities for the company, so the short-term cost was deemed worth it. Second, domestically, the growing share of smaller acquired stores has increased seasonal concentration of profits in the second half: smaller stores have higher break-even ratios, often posting Q1 losses that are offset by full-year profits, leading to structurally lower Q1 margins that will persist going forward.

Q: What has driven the stabilization of SWAP sales growth from an initial 3x to the current 110% average increase? Is this due to lower sensitivity at newer SWAP locations? / A: Management confirms the slowdown is the expected normalization of temporary hype from the initial SWAP rollout, not lower performance from new locations. Growth was always expected to stabilize around 2x after an initial temporary spike, which matches current results. Management continues to monitor performance closely and expects growth to remain stable at this level, and will assess any incremental upside from the upcoming launch of popular branded IP prizes.

Q: The company’s share price has performed poorly recently; what is your view on the causes and what improvements will you make? / A: Management notes EPS continues to hit record highs even after the latest upward revision, but the PER multiple has contracted to 16x from a historical average ~30x. The decline was driven by tariff-related market volatility, the Player One M&A announcement, and the recent public offering. Management acknowledges it needs to improve communication to address investor concerns about growth sustainability, the impact of tariffs, North American expansion risk, and M&A valuation. Going forward, the company will highlight ROIC and ROE alongside EPS to demonstrate it continues to generate high returns on invested capital even as it scales.