Leifras Co (NASDAQ:LFS) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=bdQ8V0Li

Summary

Full Transcript

Tsuruku, Moderator

Good morning and thank you for joining us. Welcome to Leifras Co's first half of fiscal year 2026 earnings conference call. My name is Tsuruku and I will be your moderator today. Today we will discuss our first half results, our core sports, school and social businesses, and the progress of our growth strategies, including mergers and acquisitions. Joining us on today's call are Mr. Kiyotaka Ito, our Representative Director and Chief Executive Officer, and Ms. Rei Yamamoto, our Director and Chief Financial Officer. Before we begin, please review the disclaimer on this slide. Some of the information presented today includes forward-looking statements regarding our future performance. These statements reflect our current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially. Further information regarding these and other risks, uncertainties or factors is included in the Leifras Co filings with the U.S. Securities and Exchange Commission. Now I will turn the call over to Mr. Ito. Mr. Ito, please go ahead.

Kiyotaka Ito, Chief Executive Officer

Hello everyone. I am Kiyotaka Ito, the company's CEO. Thank you for taking the time to join us today. I would also like to express my sincere appreciation for your continued support of our business and growth. Tomorrow, October 9th, marks exactly one year since Leifras Co was listed on NASDAQ. One year ago, we took a new step as a Japanese sports company entering the global capital markets. Over the past year, with the support of our shareholders, investors and many other stakeholders, we have worked to grow our business and enhance corporate value.

We see our NASDAQ listing as the starting point for further growth rather than the completion of our journey. During this year, we have steadily built the foundation for our next phase of growth by expanding our sports schools to all 47 prefectures in Japan, growing our school club support business and entering new business areas through M&A. Today, as Leifras Co prepares to enter its second year as a NASDAQ-listed company, I will explain the growth we aim to achieve alongside our results for the first half of FY 2026.

Next slide please. We will begin with an overview of our business followed by an executive summary of our consolidated results for the first half of FY 2026, progress on our growth strategies, our consolidated financial position and our full year outlook. Next slide, please. Let us begin with our company profile. Let me start with a brief introduction to our company. At Leifras Co, our corporate philosophy is to change and design sports. We operate a sports and social business that uses sports to address a wide range of social challenges.

Since our founding in 2001, we have expanded our operations around our sports school business. In 2013 we launched our school club support business. In FY 2025, net revenue reached US$74.8 million, a record high in the full year period shown since FY 2023. Under U.S. GAAP, we have also been recognized as Japan's number one provider in four major categories. The nationwide customer base, workforce and network of local government relationships that we have built over the past 25 years form a critical foundation for our growth today.

Next slide please. Our operations consist of two main segments, the Sports School Business and the Social Business. In the Sports School Business, our teaching philosophy is to recognize, praise, encourage and inspire children. We provide distinctive sports programs that develop not only athletic skills but also non-cognitive skills such as courtesy and good manners, leadership, teamwork, self-management and problem solving. Our Social Business centers on School Club Support and after-school daycare services that provide developmental support for children with disabilities.

In FY 2025, the Sports School Business accounted for 73% of revenue and the Social Business accounted for 27%. Next slide please. Before we review our first half figures, I would like to explain the seasonality of our business. Due to the nature of our operations, we typically generate the majority of our annual profit in the second half of the fiscal year. In the Sports School Business, membership temporarily declines during the graduation season in March, then increases from April through June as the new school year begins.

Event revenue also peaks during school holidays in March, August and December through January. The Social Business also has seasonal cash flows as payments under some local government contracts are made in March. Please keep these seasonal patterns in mind as we review our first half results. Next slide please. I will now present the executive summary for the first half of FY 2026. In the first half of FY 2026, both revenue and profit grew steadily, driven by our School Club Support business and our Sports School Business.

The key message on this slide is that five metrics reached record highs for the first half of the fiscal year in the period shown since FY 2025: net revenue, income from operations, adjusted income from operations, net income and the number of contracted club activities. Our CFO, Ms. Yamamoto, will explain the specific income statement figures shortly. Sports School membership meanwhile stood at 68,873, down 0.9% year over year. I will explain the reasons on the next slide.

The number of School Club activities under contract increased to a record 2,224. Overall, the first half brought improvements in profitability alongside top line growth. Next slide please. Sports School membership declined by 0.9% year over year. The main reasons were an increase in graduating members as existing members reached higher grades and a strategic shift in the timing of new member acquisition to strengthen service quality. In particular, we strengthened new employee training and shifted the timing of new class openings and customer acquisition.

The termination of one franchise agreement also reduced membership. Meanwhile, revised monthly membership fees and higher average spending per customer enabled the Sports School Business to achieve growth in both net revenue and segment profit, and despite the slight decline in membership, both measures reached record highs for the first half of the fiscal year in the period shown since FY 2025 under U.S. GAAP. We expect membership to recover in the third and fourth quarters through new initiatives.

Next slide, please. Next, let us look at the key developments. In the first half, we made concrete progress across three areas: the Sports School Business, the Social Business and M&A. In the Sports School Business, we expanded our presence to all 47 prefectures and broadened our business foundation through new services, alliances and M&A. In the Social Business, we increased our School Club Support contracts and diversified our after-school daycare services.

Through M&A, we strengthened our existing businesses and took steps toward entering childcare. We signed the Share Transfer Agreement for Swift Japan on June 23, 2026, and the company became our subsidiary on July 1, 2026, after the first half reporting period. I will discuss these developments in detail in the Growth Strategy section. I will now hand over to our CFO, Ms. Yamamoto, to review the financial results.

Rei Yamamoto, Chief Financial Officer

Thank you, Mr. Ito, and good morning everyone. I am Rei Yamamoto, the company's CFO. I will discuss our consolidated results for the first half of FY 2026, in which we delivered strong top line growth and profit growth that significantly outpaced it. Next slide, please. Let us begin with the consolidated income statement. The earlier summary provided an overview. I will now take you through the figures. Net revenue increased 8.9% year over year to US$36.8 million and gross profit increased 22.6% to $10.9 million.

I would particularly like to highlight our strong operating leverage. Income from operations increased 35.9% to US$0.6 million and net income increased 43.5% to $0.5 million. Profit growth substantially outpaced revenue growth. Net revenue, gross profit, income from operations, operating margin, adjusted income from operations and net income all reached record highs for the first half of the fiscal year in the period shown since FY 2025. Our operating margin increased from 1.2% to 1.5%, an improvement of 0.3 percentage points.

The key highlight is the further improvement in the profitability of our core operations. Next slide please. Next, let us look at Adjusted Income from Operations, a non-GAAP measure that we use to assess the profitability of our core business. It supplements our U.S. GAAP results and should be considered alongside them. The definition and reconciliation are provided in the appendix. First-half income from operations was US$0.6 million. Acquisition-related costs were $0.3 million.

Adding back these costs, adjusted income from operations was $0.9 million, or 139.7 million yen, up 105.6% year over year. This compares with $0.4 million in the first half of FY 2025, when there were no acquisition-related costs to add back. The profitability of our core business continued to improve, providing a foundation for second half growth. Next slide please. Let us now review segment performance. In the Sports School Business, higher monthly membership fees contributed to increased customer lifetime value.

Net revenue rose 5.4% year over year to US$25.5 million and segment profit increased 2.5% to $5.3 million. This business continues to provide a stable earnings base for our growth. In the Social Business, the expansion of School Club Support contracts drove strong growth. Net revenue rose 18.0% to $11.3 million and segment profit increased 156.7% to $1.7 million. Both businesses reached record highs within the first half comparison shown from FY 2025 onward under U.S. GAAP and contributed to our overall performance. I will now hand the presentation back to Mr. Ito to discuss the progress of our growth strategies in more detail.

Kiyotaka Ito, Chief Executive Officer

Thank you, Ms. Yamamoto. I will now discuss the progress we made on our growth strategies during the first half. Next slide, please. Let us turn to the Sports School business, the foundation of our operations. This slide provides an overview. I will cover our expansion to all 47 prefectures and the Tokai Sports acquisition in detail on the following slides. Higher monthly membership fees improved customer lifetime value, enabling us to achieve growth in both net revenue and segment profit, despite a slight year-over-year decline in membership.

Our CFO has already explained the specific financial results. We developed Six Shoot, a new sports competition in collaboration with the popular anime Blue Lock. We also launched 1v1 Dribble Academy D-UNLOCK, a soccer school specializing in dribbling under the supervision of Masakazu Okabe, known as the Dribble Designer. We signed an alliance agreement with Blaublitz Akita and opened a collaborative school in Odate City, Akita Prefecture, completing our expansion to all 47 prefectures.

We also acquired approximately 1,185 members through the Tokai Sports acquisition. I will explain these two developments on the following slides. In addition, we launched elspo, a multi-sport school for younger children and those seeking a more casual introduction to sports. Next slide, please. We have achieved a key goal set at our establishing a presence in all 47 prefectures in Japan. The significance lies not simply in reaching every prefecture, but in completing a nationwide network of instructors and operating locations.

With this nationwide instructor network in place, we are entering our second phase of growth. We will expand into underserved areas within each prefecture, pursue further M&A, offer additional sports in existing markets, scale our school club support business, and expand overseas. Until now, our focus has been on establishing individual footholds. We will now build a broader presence around those footholds, increasing the density of our operations in each region to grow revenue and profit per region.

Next slide, please. Next, I will focus on the synergies from the Tokai Sports acquisition mentioned earlier. Through this transaction, we acquired a base of approximately 1,185 members along with a business-to-business-to-consumer platform serving around 20 partner kindergartens and nursery schools. None of these partner institutions has terminated its contract over the past three years. By combining Tokai Sports’ expertise in teaching athletic skills with our methods for developing non-cognitive skills, we will provide an integrated environment that develops both sporting ability and personal character.

This acquisition will help us expand market share, retain members seeking more competitive sports programs, and attract customers at lower cost through the business-to-business-to-consumer model, thereby maximizing customer lifetime value. Next slide, please. Here I would like to explain the changes in the education market that support our business opportunities. As AI becomes more widely used, some cognitive skills such as memorization and calculation are increasingly susceptible to automation.

At the same time, interest in non-cognitive skills such as leadership, teamwork, and perseverance is growing. In the June 2026 parents survey cited on this slide, only 1.7% of respondents selected academic ability and grades as their top priority. Since our founding, we have emphasized building inner strength—in other words, developing non-cognitive skills. We will use this strength to expand our opportunities both in acquiring individual sports school members and in providing solutions to educational institutions and other business customers.

In our partnerships with tutoring schools, we began collaborating with Mainichi Kobetsu Juku Five Days in 2020 and are also pursuing a partnership with Ando Juku in 2026. Our aim is to expand collaboration across the broader education sector beyond sports schools. Next slide, please. Let us begin with an overview of the Social Business. On the following slides, I will focus on school club activities, expansion into urban areas, childcare, and after-school daycare services, in that order.

In school club support, we served 24 local governments and seven private schools. We secured five new local government contracts, including three in Tokyo’s special wards and government-designated cities. We also retained all 19 existing local government clients, achieving a 100% retention rate. In after-school daycare services, we acquired four locations through the acquisition of Well Resource. We also added Flei, which provides motor learning support, and Ilfe, which provides independent learning support, including M&A. Our network expanded from 20 to 29 locations, up 45% year over year. As a result, the Social Business as a whole achieved growth in both revenue and profit. I will now explain the progress in each area. Next slide, please. Let me discuss our school club support business in more detail. As of the end of June 2026, we supported 478 schools and 2,224 school club activities under contract, up 37.0% and 6.2% year over year, respectively. We secured new contracts across a broad range of areas from major metropolitan regions to regional cities, including Ota Ward in Tokyo, Kawasaki City and Fujisawa City in Kanagawa Prefecture, Niiza City in Saitama Prefecture, and Chiba City in Chiba Prefecture. After completing Phase One, which focused on pilot programs and building a track record, we are now in Phase Two, expanding into government-designated major cities and Tokyo’s special wards. Starting in the Japanese fiscal year beginning April 2026, the National School Club Activity Reform Initiative enters its implementation period. As the market is expected to expand significantly, we will build on our track record to further strengthen our competitive advantage.

Next slide, please. Our contracts in urban areas are also expanding steadily. As of the first half, we had secured contracts in three of the seven government-designated major cities that had conducted public solicitations, representing a contract acquisition rate of 42.9%. Among Tokyo’s 23 wards, we had secured contracts in eight of the 12 wards that had conducted public solicitations, representing a rate of 66.7%. From July through September 2026, we also secured contracts in Sapporo and Kyoto among government-designated cities, and in Adachi and Edogawa among Tokyo’s 23 wards.

Including these additions, we hold contracts in five of the nine cities that have conducted public tenders, a win rate of 55.6%, and 10 of the 14 wards, a win rate of 71.4%. By building our presence in densely populated urban areas with large numbers of schools, we will improve the efficiency of recruitment, staff deployment, and operations, supporting further expansion. Next slide, please. This slide shows how our business foundation has expanded over the past year.

Between the end of June 2025 and the end of June 2026, the number of contracted local governments increased from 19 to 24, the number of contracted schools increased from 349 to 478, and the number of contracted club activities increased from 2,095 to 2,224. We also expanded our contracted service areas into Saitama, Chiba, and Kanagawa Prefectures. The key point is that we are increasing both the number of contracts and the geographic reach of our operations.

Next slide, please. Next, let us look at our entry into childcare. We signed the share transfer agreement for Swift Japan on June 23, 2026, and it became our subsidiary on July 1, 2026. Through this acquisition, we added five small-scale licensed daycare centers, one corporate-sponsored daycare center, and one after-school care facility to our group, marking our full-scale entry into the childcare business. This gives us a stable operating foundation supported by public funding while enabling us to establish relationships with children and their parents from infancy earlier than in our existing businesses.

Through collaboration with HR Produce, which partners with more than 10,000 preschools nationwide, and the introduction of Milabo, a system for assessing non-cognitive skills, and the opening of sports schools within childcare facilities, we will create synergies with our existing businesses and continue evolving into an education platform that supports children’s development. Next slide, please. Our after-school daycare business now operates 29 locations—an increase of nine locations, or 45%, year over year.

In addition to our existing soccer-based therapeutic education programs, we are diversifying into indoor exercise and motor learning support, as well as support for independent learning including computer skills. By broadening our developmental support options, we will address a wider range of needs while expanding into new areas and building concentrated networks of locations in local communities. Next slide, please. This slide illustrates our comprehensive business model in Aichi Prefecture.

We offer multiple services tailored to children’s stages of development: childcare through Swift Japan; partnerships with kindergartens and daycare centers; Leifras Co sports schools offering 13 sports; Tokai Sports; after-school daycare services; Nagoya Sports and Culture Community after-school programs; elementary school club support in Nagoya; and junior high school club support. As noted on this slide, Swift Japan became our subsidiary on July 1, 2026, after the first half reporting period.

In Aichi, we are building a strong local presence by combining sports schools, school club activities, welfare services, childcare, and after-school services. We will apply the expertise gained here to address more social challenges and replicate this model in other regions.

Rei Yamamoto, Chief Financial Officer

I will now discuss our consolidated financial position. Next slide, please. Let us review the highlights of our consolidated balance sheet. As of June 30, 2026, total assets were US$30.4 million, up 5.6% from December 31, 2025. Total shareholders’ equity was $11.8 million, up 4.2%. The increase in shareholders’ equity reflected net income recorded during the period. Supporting our sound financial foundation, we plan to continue to maintain a sound financial foundation as we pursue growth as outlined in our capital allocation policy.

We will prioritize M&A with rigorous assessment of strategic fitness, synergies, investment rationale, risks, and integration requirements. Next slide, please. Next, let us review cash flow. Net cash provided by operating activities was US$1.6 million, compared with $1.9 million in the prior year. First-half net cash used in investing activities was $1.3 million, compared with $0.3 million a year earlier. Net cash provided by financing activities was $0.2 million, compared with a cash outflow of $1.9 million in the prior year.

Cash and cash equivalents increased by $0.4 million during the first half of FY2026. Cash and cash equivalents at the end of the period were US$15.9 million, compared with $15.4 million at the end of the prior year. This supports the abundant liquidity highlighted on this slide. Finally, I will discuss our full year outlook for FY 2026. Our full year consolidated outlook for FY 2026 remains unchanged as shown in the forecast table. We expect net revenue of US$82.9 million to US$95.7 million, representing growth of 10.8% to 27.9% compared with FY 2025. We expect income from operations of US$4.5 million to US$5.4 million, representing growth of 13.2% to 33.9%. Our expected operating margin is 5.5% to 5.6%. In the first half, both the sports, school and social businesses achieved growth in revenue and profit and we made steady progress on our growth strategies.

Given that the majority of our profit is generated in the second half, we will continue to execute our second half initiatives and work toward achieving our full year targets. As stated in the presentation materials, this outlook assumes that no business acquisitions, restructuring transactions or legal settlements are entered into. That concludes my presentation.

Tsuruku, Moderator

Thank you, Mr. Ito and Ms. Yamamoto. We will now move on to the question and answer session to address the questions submitted in advance. Due to time constraints, we will focus on the most frequently asked questions. Let us begin with questions about M&A. Last year you cited overseas expansion as one of the reasons for listing on Nasdaq. You have recently announced your first overseas initiative. How should we view its scale and has there been any change in your strategy?

Kiyotaka Ito, Chief Executive Officer

There has been no change in our overseas expansion strategy for the Canadian initiative. We deliberately chose this scale as a test market rather than taking on excessive risk from the standpoint of financial discipline. Our first step is to carefully assess how our approach to developing non-cognitive skills can generate revenue overseas and to validate the unit economics or profitability per customer. Once we have confirmed that the business model is repeatable and identified a clear path to success, we intend to commit capital and scale up.

This approach emphasizes capital efficiency over the medium to long term.

Tsuruku, Moderator

As you accelerate M&A, will you expand into industries where you have no prior experience? Could entering unfamiliar fields increase the risk of operational or integration failures after an acquisition?

Kiyotaka Ito, Chief Executive Officer

We do not intend to expand into unrelated industries without limits. Our investment focus is on areas adjacent to sports and education where we expect synergies with our existing businesses. We apply rigorous due diligence and investment recovery criteria regarding post-merger integration. We respect the strengths and expertise of acquired businesses while introducing our capabilities in personnel management, performance management and internal controls.

We aim to integrate management systems at an early stage. We will select acquisition targets where we can enhance value both financially and operationally.

Tsuruku, Moderator

Even if your Japanese approach to developing non-cognitive skills is effective overseas, that does not necessarily mean parents will pay for it. How will you make your overseas school services a compelling choice for local families?

Kiyotaka Ito, Chief Executive Officer

Rather than building a business from scratch, we envisage an add-on model in which we enhance existing services that already have an established revenue base in the local market. Our financial objectives are to reduce customer churn by improving satisfaction and to maximize customer lifetime value as service quality improves. We also see potential for appropriate pricing adjustments in the future. We will validate local needs and monitor KPIs that demonstrate a contribution to revenue.

Tsuruku, Moderator

Next, we will address questions about the sports school business. Have membership and business performance in your core sports school business reached a plateau? Do you expect growth to slow from here?

Kiyotaka Ito, Chief Executive Officer

We explained the factors behind the membership trend earlier in the presentation. We are making a concerted effort to address these factors in the second half of this fiscal year. Overseas investors often ask us whether there is still room for a business serving children to grow in Japan, given the declining birth rate. My answer is yes. We believe we can continue to grow. There are two main reasons. First, we will strengthen our M&A strategy. The declining birth rate creates a difficult business environment, and many companies in our industry face financial challenges.

Some have served their local communities for many years but are reaching their limits partly because of succession issues. As a result, acquisition opportunities have increased considerably. Our listing has placed us in a position to choose among these opportunities. We believe we can benefit from consolidation in the market, and making effective use of those opportunities is our first growth driver. Second, we will pursue alliances with companies in other industries.

We cannot discuss specific initiatives at this stage, but major companies are showing strong interest in the market, serving children from the perspective of customer lifetime value. These companies are interested in addressing social challenges as well as generating profits. Providing education and opportunities that help children who represent Japan's future overcome the challenges they face is an urgent social priority. With major companies that share this perspective, we can discuss practical solutions based on a common understanding.

We see deeper collaboration with these companies as another part of the growth story for our sports school business.

Tsuruku, Moderator

We understand that pricing adjustments helped offset the lack of membership growth and supported revenue growth this time. Going forward, will growth be driven mainly by higher revenue per member or will you prioritize expanding membership?

Kiyotaka Ito, Chief Executive Officer

We intend to pursue both membership growth and higher revenue per member. To expand membership, we will implement the strategies discussed earlier, including attracting younger children, deepening our presence in existing markets, M&A, and alliances. We also intend to increase revenue per member by enhancing the value we provide. We view tuition adjustments in response to inflation as a development that can occur across the education services industry.

For parents who prioritize investment in their children's education, the value they receive matters alongside the price. By improving service quality and helping parents experience value that justifies the price, we believe we can earn their understanding of tuition adjustments. We will therefore improve the quality of instruction and use alliances with other companies to expand our services and the range of experiences we offer. Any price increase must be supported by corresponding value so that parents choose our services with confidence.

By increasing both membership and the value we provide per member, we aim to achieve sustainable growth in revenue and profit.

Tsuruku, Moderator

We will now turn to questions about the social business. The implementation period for the reform to move school club activities into community-based programs has begun. In this first year, how do you assess the gap between expectations and reality? Some municipalities, including Kobe and Toyota, are also pursuing their own approaches. Although the estimated economic impact has been described as 500 billion yen, could the opportunities available to private companies be much smaller.

Kiyotaka Ito, Chief Executive Officer

As a leading operator, we have encountered a broad range of cases during the first year of the reform implementation period. Our candid impression is that relatively few local governments are willing to take the first step. Many are initially taking a wait-and-see approach. We discussed the number of public tenders earlier in the presentation. We also recognize that we need to act proactively rather than simply wait for opportunities and that is the approach we are taking this fiscal year.

Some municipalities are pursuing their own initiatives at the same time. Satisfaction among the municipalities we have served has been very high and our repeat engagement rate is 100%. We therefore believe there may also be opportunities to engage in discussions with municipalities currently pursuing independent approaches. The alliances with major companies that I mentioned earlier also extend to the transition of school club activities into community-based programs, an area attracting considerable attention.

Depending on how these initiatives develop, we believe they could bring about a significant shift in this field.

Tsuruku, Moderator

Are you increasingly losing competitive tenders for school club activity support to providers offering lower prices? Could this affect future contract growth or profitability?

Kiyotaka Ito, Chief Executive Officer

In some tenders, providers offering lower prices are selected. However, we believe the competitive environment should be assessed not only in terms of price but also in terms of whether a provider can consistently maintain stable operations. This is the first year of the reform implementation period and municipalities are still evaluating providers' operational capabilities. After a contract is awarded, the provider must recruit and train instructors, cover staff absences, manage employment matters, and maintain safety among many other responsibilities, even if the price is low.

Failure to maintain these functions can increase the burden on schools and municipalities. We have in fact received inquiries concerning programs operated by other providers. We believe such experiences will give municipalities more opportunities to assess the importance of sustained operational capability. Our policy is not to win contracts by prioritizing price alone. We emphasize maintaining the necessary operating structure, securing an appropriate profit, and providing stable services.

As full-scale implementation progresses, we believe there will be more opportunities for municipalities to recognize the value of our workforce and organizational capabilities.

Tsuruku, Moderator

The number of contracted club activities has grown more slowly than the number of schools served. Does this simply mean that smaller contracts are increasing? Could growth in the number of schools fail to translate into revenue growth?

Kiyotaka Ito, Chief Executive Officer

To understand this trend, it is necessary to consider how operating models are changing as school club activities move into community-based programs. Under the traditional school-based model, each school has multiple club activities. A provider may be contracted to support several of those activities, so an increase in schools can also lead to a substantial increase in the number of club activities. More recently, however, we are seeing more joint activities and community clubs that bring together students from multiple schools.

In these cases, the number of schools served can increase without a corresponding increase in the number of activities or community clubs operated. Therefore, slower growth in club activities relative to schools does not by itself indicate that contracts are becoming smaller or that growth is weakening. It partly reflects the shift from school-based to community-based activities. Revenue also depends on factors such as the frequency of activities and staffing levels and the scope of operational and administrative responsibilities.

We will continue to support these community-based operating models and seek to translate the expansion of our services into revenue and profit growth.

Tsuruku, Moderator

Next, we will address questions about financial performance and profitability. Should investors expect your operating margin to remain around its current level?

Rei Yamamoto, Chief Financial Officer

Our operating margin may appear modest, but this reflects our management policy of maintaining the spending on safety required to continue operating without serious accidents. We do not intend to lower that standard. That does not mean we have given up on improving our operating margin. Our business model has operating leverage. Once revenue covers a certain level of fixed costs, including the underlying costs of safety management, further revenue growth can generate a larger increase in profit.

We intend to improve our operating margin over the medium to long term by increasing capacity utilization at existing schools and maximizing economies of scale through M&A and alliances.

UNKNOWN Analyst

Segment profits are substantial, but there is a large gap between those profits and consolidated operating profit. Could corporate expenses continue to rise as the business grows, leaving little profit for shareholders?

Rei Yamamoto, Chief Financial Officer

It is true that corporate expenses, including spending to strengthen governance, have increased ahead of our expanding business scale. However, our key focus is to keep the growth rate of administrative expenses below the growth rate of revenue, thereby achieving operating leverage through the standardization of back-office processes and investment in digital transformation. We are developing a structure that can support business growth without excessive increases in administrative headcount.

We expect these efforts to increasingly translate into consolidated profit and ultimately shareholder returns.

UNKNOWN Analyst

Finally, we will address questions about the timing of financial disclosures and shareholder value. There is an impression that your earnings announcements come relatively late. Can you announce your results earlier in the future?

Rei Yamamoto, Chief Financial Officer

First, we have consistently made our financial disclosures well ahead of the applicable statutory deadlines. At the same time, as a NASDAQ-listed company, we benchmark our disclosure speed against leading U.S. companies. The recent changes to our U.S. audit firm arrangements are part of our efforts to further accelerate and streamline the disclosure process. Alongside further improvements to our internal financial reporting processes, we will continue to pursue timely disclosure that meets global standards.

UNKNOWN Analyst

If you issue additional shares to fund M&A or overseas expansion, existing shareholders' ownership will be diluted even if the company grows. Overall, how do you think about value per share?

Rei Yamamoto, Chief Financial Officer

Growth in total revenue or profit does not necessarily mean that value per share has increased. When considering financing, we must take into account the impact on existing shareholders. We cannot comment on any unannounced financing plans. However, when evaluating financing, it is important to compare the intended use of funds, the terms and the amount required with the expected results of the investment. If financing involves issuing shares, we must assess whether the value created can justify the impact of dilution. Expanding the company's scale alone is not an appropriate basis for that decision. Our approach is to evaluate investment opportunities and financing terms together with an emphasis on translating corporate growth into higher value per share.

Tsuruku, Moderator

This concludes Leifras Co's earnings briefing for the first half of FY 2026. Thank you for taking the time to join us today. We look forward to your continued support. Thank you again for joining us today.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.