QLS Holdings Co.,Ltd Q3 FY2025 earnings call

• Company Overview & Core Business Model: QLS Holdings operates three core business lines (childcare, nursing and welfare, specialized staffing) under the corporate mission of "Quality of Life for all". Founded in 2005, it is listed on the Tokyo Stock Exchange Growth Market. Revenue structure: ~90% of childcare revenue comes from local government subsidies, ~70% of nursing and welfare revenue comes from public payments, and staffing revenue comes primarily from client corporate fees.
• Childcare Business Operational Highlights: Operates multiple types of childcare centers centered in major urban areas (Tokyo, Osaka, Yokohama), with up to 15/16 of construction costs subsidized for new openings, limiting capital expenditure. Differentiates via in-center extracurricular programs (English, programming) to meet working parent demand, and prioritizes expansion of after-school childcare with STEAM education to create a stable, continuous revenue stream from pre-school through elementary school.
• Nursing and Welfare Business Operational Highlights: Leverages M&A to achieve rapid regional scale, becoming the largest operator of disability group homes in Okinawa and a top player in the Kyushu-Okinawa region. Offers full life-stage services covering early childhood development support through elderly care, and designs facilities to allow conversion from childcare to nursing use to adapt to demographic change, enabling flexible asset utilization.
• Staffing Business Operational Highlights: Specializes in automotive industry staffing, one of only two nationwide providers focused on automotive mechanics, with in-house coordinators (ex-mechanics and native-speaking foreign coordinators) that reduce placement mismatch and maintain high repeat rates. Has expanded into hotel/inn staffing to capture recovering inbound demand, and prioritizes growth in foreign worker dispatch to address domestic labor shortages.
• Growth Strategy: The company pursues continuous growth via a combination of new facility openings and targeted M&A, aiming to reduce reliance on childcare and build a balanced revenue portfolio across its three business lines.

1. Childcare Business: 4.205 billion yen in revenue, 11.4% YoY growth, accounts for 55.2% of total 3Q revenue. Growth is driven by steady expansion of after-school childcare services. 2. Nursing and Welfare Business: 1.921 billion yen in revenue, 94.3% YoY growth, accounts for 25.2% of total 3Q revenue. Growth is driven by facility expansion from M&A and improved occupancy rates. Disability welfare service sales have now surpassed traditional care service sales. 3. Staffing Business: 1.209 billion yen in revenue, 27.1% YoY growth, accounts for 15.9% of total 3Q revenue. Growth is driven by increased dispatch of foreign workers.

• Full-year 2025 March fiscal year guidance is maintained at 9.71 billion yen in consolidated revenue and 0.52 billion yen in recurring profit, despite cumulative 3Q results coming in above plan.
• The company reaffirms its 2027 March fiscal year medium-term target: 12.0 billion yen to 12.5 billion yen in consolidated revenue, and 0.8 billion yen to 0.9 billion yen in recurring profit.
• The 2027 medium-term KPI targets are: 32,000 children served in childcare, 27,000 service users in nursing and welfare, and 5,000 dispatched staff in the staffing business.
• A commemorative dividend and commemorative shareholder benefit are scheduled for the 2025 March fiscal year, with plans to increase payout ratio and expand basic benefits as the company grows.

• The childcare industry faces intensifying competition that could pressure occupancy rates and market share.
• The nursing and welfare industry is highly exposed to regulatory changes and revisions to public service reimbursement rates, which could impact profitability.
• Both the nursing and staffing industries face ongoing domestic labor shortages that could limit operational and revenue growth.

Q: What is the likelihood of achieving the 12.5 billion yen 2027 fiscal year sales target? / A: Only high-probability new openings and M&A deals are included in the current 12.5 billion yen target. The company is expanding via new childcare facility openings (including private transfers), new nursing locations near existing sites, and increased sales staffing for the staffing business. It is balancing growth by increasing the share of nursing and staffing while maintaining stable childcare growth, focusing on improving profit margin alongside expansion, and leveraging cross-business synergy to drive profitable growth. Management sees the target as fully achievable, with upside from additional unplanned new openings and M&A.

Q: What key criteria does the company prioritize when evaluating M&A targets? / A: The company strictly selects targets, focusing on established, regionally rooted businesses where QLS can improve profitability after integration via operational tweaks. It avoids overpaying for high-performing public targets, keeping goodwill very low on its balance sheet. QLS prioritizes underperforming targets that can be acquired at low valuations, then improves their value to drive group growth, a strategy that has worked well to date.

Q: How is the company responding to intensifying competition in the childcare industry? / A: QLS differentiates via high value-added services, including in-center extracurricular programs like English, programming, and rhythmic movement that meet parental demand for convenience and developmental support. It also prioritizes expansion of public-private after-school childcare, strengthening partnerships with local governments to enable seamless, continuous service from childcare through elementary school, which is a core competitive advantage.

Q: What is the purpose of the recent acquisition of a Thai company? / A: QLS acquired the Thai firm to position for future growth, as Thailand is expected to see rapid population aging and rising nursing demand similar to past demographic trends in Japan. The acquisition is the first step in QLS's planned expansion into Southeast Asian markets including Vietnam. It also helps QLS develop a pipeline of foreign nursing workers to address ongoing labor shortages in Japan's domestic nursing market.