GENDA Inc. Q2 FY2026 earnings call

North America Business Model & Strategic Positioning

• The North America mini-location business model differs from domestic Japanese game centers: it is fully unmanned (no labor cost), uses small claw machines (low capital expenditure, low depreciation), and primarily uses revenue-share variable rent instead of fixed rent, operating like a vending machine network for Japanese anime IP merchandise.
• This creates the first Japanese-owned nationwide direct-to-consumer channel for Japanese anime IP in North America, filling a gap left by high-cost brick-and-mortar retail and online platforms that capture most profits from content distribution. Japanese government agencies and policy makers support this initiative as a way for Japanese IP to earn foreign revenue.

Post-M&A Integration (PMI) Strategy

• Two integration tactics: SWAP replaces existing low-performing machines with Japanese IP claw machines, requiring removal of old hardware and capital investment; Add on adds new Japanese IP machines to unused space with no removal cost, for higher investment efficiency prioritized currently.
• Only sites meeting a strict 7-year payback hurdle rate are upgraded: out of 10,000 NEN sites, only ~4,000 meet the threshold. Payback periods range from 1 to 4 years for SWAP, with even faster payback for Add on. Historical Kiddleton operations achieved 6-12 month payback with IRR of 100-200%. Current 30% US-China tariffs reduce speed but if eliminated will create additional upside.

Capital Allocation Strategy Shift (Major Corporate Change)

• This is the largest strategic shift in GENDA's 8-year history: moving from relying on external equity/debt financing for all M&A to self-funding M&A via positive free cash flow, by cutting low-return organic investment.
• Priority order for free cash flow use: 1) M&A (inorganic growth), 2) select high-return organic investment (game center-related projects, especially North America), 3) share buybacks, 4) dividends. Dividends are only justified if no high-return investment opportunities exist, so no dividend priority for the foreseeable future.
• Share buybacks are treated as an alternative investment: purchased undervalued shares are held (not retired) and can be reused as M&A currency when share price rises, unlocking value for existing shareholders. GENDA views its current 7-8x EBITDA multiple as undervalued relative to its growth prospects.
• The shift improves lender relationships: after years of net borrowing with no net repayment, improving free cash flow will allow gradual deleveraging and preserve future debt capacity for large M&A. It also reduces the need for frequent equity offerings, reducing dilution for existing shareholders.

Key IR Change

• Going forward, GENDA will focus investor communication on three core KPIs: adjusted EBITDA, adjusted net income before goodwill amortization, and adjusted Cash EPS, to better reflect underlying operating performance for an M&A-focused growth company.

1. Domestic Amusement Segment: Operates GiGO-branded game centers, with claw machine revenue growing for 10 consecutive years (excluding 2019 COVID) to all-time high profits. Annual EBITDA for the entire company is 27 billion yen (27.0 billion yen). After tax and maintenance CAPEX, inefficient organic investment cutting will convert historical negative free cash flow of ~-10 billion yen (-10.0 billion yen) to positive 5 billion yen (5.0 billion yen) annually, a 15 billion yen (15.0 billion yen) improvement.
2. North America Amusement Segment: Operates 13,000 mini-location claw machine sites via 4 acquired firms: Kiddleton (600 organic sites), NEN (10,000 sites, acquired at 3.6x EBITDA), PLAYER ONE (acquired at 8.5x EBITDA), plus Barberio and Venuplus. SWAP (replacing existing machines with Japan anime IP claw machines) delivers +105% average sales growth at upgraded NEN sites, while Add on (adding new machines to empty space) delivers +46% growth. The segment has already achieved a breakthrough of 7-year first new site openings at Walmart, after sales doubling increased Walmart's shared revenue, leading to new larger location invitations. A new capsule machine partnership with Takara Tomy Arts for North America is launched, not yet included in the medium-term plan.

• North America Organic Growth: 22.5 billion yen (22.5 billion yen) cumulative sales increase targeted between FY2027 (January 2027) and FY2030 (January 2030), from SWAP and Add on only (no additional M&A included). The target is conservative, built from visible achievable projects with no excessive upward bias.
• Group-wide EBITDA: 75 billion yen (75.0 billion yen) group EBITDA targeted by 2030, which management believes is fully achievable with existing M&A pipeline, maintaining both quality of valuation and growth scale.
• Full-scale Japanese IP monetization in North America: Management expects full-scale revenue contribution from new IP partnerships to begin in 12 months, with all planned IP deployments completed by mid-2026, and full network deployment taking slightly longer.
• Accounting change: IFRS adoption will begin in FY2026 (January 2026), with retrospective application to the start of FY2026, no retrospective application for prior periods before that. Parallel disclosure of IFRS and Japanese GAAP results will occur for FY2026 and FY2027.

• Pursuing both scale growth and high valuation quality for M&A may become more challenging after reaching 75 billion yen EBITDA, with more difficult tradeoffs expected in the 2035-2040 period as the company targets trillion-yen EBITDA scale.
• A potential US recession would not significantly impact operations, as 1-dollar-per-play low-cost entertainment is historically resistant to economic downturns, demonstrated during the COVID-19 crisis in Japan.
• Only some US states have claw machine/amusement regulation, with no uniform nationwide regulation creating uncertainty for incremental expansion.
• ROIC has declined from the 30% range seen before 2025, due to the start of corporate income tax payments which normalized the ROIC calculation, though it remains at a solid level.
• Small low-sales sites can achieve 105% sales growth after SWAP but may not generate enough incremental revenue to cover investment cost, so only high-potential sites are upgraded to avoid impairment losses.

Q: Will pursuing 75 billion yen EBITDA by 2030 force GENDA to accept lower quality, more expensive M&A, creating a tradeoff between scale and valuation quality? / A: Management believes that up to the 75 billion yen 2030 target, both scale and high valuation quality can be achieved simultaneously, with enough high-quality deals in the current pipeline to hit the target. Tradeoffs between the two are only expected after 2030-2035, when GENDA targets much larger trillion-yen scale, and synergies will become more critical to maintaining quality at that stage.

Q: Will the capital allocation shift reduce the frequency of large externally financed M&A going forward? / A: GENDA will still pursue large M&A and use external financing if attractive opportunities arise, but the need for frequent external financing will decline as free cash flow turns positive. Stock-for-stock M&A will be used more often, which has benefits of immediate availability of currency and clear valuation transparency for both parties, helping reduce financing needs while still allowing large transactions.

Q: When will full-scale Japanese IP introduction and monetization begin in North America? / A: Full-scale monetization will ramp up over the next 12 months. Many IP holders have already committed to partnering with GENDA's platform, and the pipeline of new IP launches is filled through next summer. While initial uplift from SWAP is already visible, full contribution from new partnerships will materialize after this deployment period.

Q: What is GENDA's stance on moving from the Tokyo Growth market to the Prime market? / A: Moving to Prime requires pausing M&A to meet listing requirements, which would interrupt GENDA's core growth strategy. TOPIX will now include Growth market stocks anyway, and moving to Prime increases operating costs, so there is no benefit to GENDA making the switch currently.