GMO Financial Gate,Inc. Q1 FY2025 earnings call

• Overall Financial Results: - Total Q1 revenue: 4.58 billion yen, YoY +1.9%, 47.4% of half-year plan and 20.7% of full-year plan. - Operating profit: 820 million yen, YoY +69.1%, 75.9% of half-year plan and 41.0% of full-year plan. - Gross profit: 1.59 billion yen, YoY +25.1%; Pre-tax profit: 829 million yen, YoY +70.5%; Net profit: 602 million yen, YoY +90.1%, 89% of half-year plan. - Key KPIs: 237.1 million transactions (YoY +44.3%), 1.9852 trillion yen GMV (YoY +36.4%), 393,000 active IDs (67,000 net YoY increase, +20.6%). - Recurring gross margin currently stands at 58.3%, with a target to increase it to 70%.
• Long-term Growth Strategy: - Announced a formal roadmap to reach 10 billion yen operating profit by 2033 (following an existing 5 billion yen target for 2030, which is now considered highly feasible with 5 years of post-IPO track record). - Growth is structured around three solution assets: (1) Payment Core (terminal-triggered payment platform), (2) Payment Business DX (DX of merchant operations enabled by cashless payments), (3) Payment Activation (data utilization for merchant growth). - The 2033 10 billion yen target is built on three core KPIs: (1) 1,000,000 active IDs (60,000-70,000 net annual increase), (2) 2,500 yen recurring ARPU (up from 2,000 yen currently targeted for this fiscal year, up from 1,800 yen in FY2024), (3) gross margin improvement to 70%.
• Operational Updates: - Unattended terminals grew 24.7% YoY, driven primarily by parking lot demand; device-less stera tap service reached 7,000 IDs. - Large client pipeline progress: Commercial properties B and C are in development, with additional rollouts planned for FY2026 and beyond; new amusement sector client onboarding in progress, leveraging GMOFG's strength in unattended IoT payments. - Mobility/transit segment: Mastercard processing launched October 2024, increased transaction volumes from cross-network transit interoperability, expecting broader adoption of this model. - Contactless touch payment penetration increased 21pp YoY, now over 50% of all transactions. - Achieved a CDP score of B for the second consecutive year (the only company on the Tokyo Stock Exchange Growth Market to do so).
• Margin Improvement Initiatives: - Improve leverage by reusing common development assets across clients instead of building custom solutions from scratch. - Accelerate AI adoption for code generation, test automation, and data rule creation to improve development efficiency.

1. Initial (one-time) sales: 2.566 billion yen, YoY -12%, accounting for 56% of total Q1 revenue. The decline is driven by a large prior-year travel industry comparable and a shift to zero-initial-fee device-less offerings for SME market share gain. 2. Recurring sales: 2.017 billion yen, YoY +27.6%, accounting for 44% of total Q1 revenue. Broken down into: - Stock sales: 476 million yen, YoY +23% - Fee sales: 1.163 billion yen, YoY +36.4% - Spread sales: 377 million yen, YoY +10.8% (double-digit growth maintained amid portfolio review)

• Full-year FY2025 operating profit target maintained at 2.02 billion yen. - Recurring segment target of 25% full-year YoY growth maintained, with 15%+ growth targeted for spread sales even amid portfolio review. - Long-term targets maintained: 5 billion yen operating profit by 2030, newly formalized 10 billion yen operating profit by 2033. - 2033 long-term KPI targets maintained: 1,000,000 active IDs, 2,500 yen recurring ARPU, 70% recurring gross margin. - Management expects continued faster growth in transaction volumes relative to GMV, driven by growth in low-value daily use merchant segments.

• Initial sales are currently underperforming internal expectations, with some planned large client deals pushed to later quarters; additional turnaround work is needed to improve solutioning for pipeline deals. - The shift to zero-initial-fee device-less offerings for SME market share gain has pushed down near-term initial sales average revenue per acquisition. - Spread sales growth is intentionally slowed by ongoing merchant portfolio risk review, which creates near-term pressure on top-line growth. - Meeting the 10 billion yen 2033 operating profit target requires additional vertical market expansion and new payment activation services that are still in early development, with uncertain timelines and returns. - Large custom vertical solutions carry development cost risk if not designed to leverage common assets.

Q: Is the stronger marketing for device-less stera tap (which does not contribute to near-term initial sales) a deliberate GMOFG strategy, and will low initial sales levels persist? What solutions will drive 2033 payment activation growth, and how much development investment will be required? / A: stera tap expansion is a joint strategic initiative with partners, using touch payment as an entry point for SME market acquisition, and management will continue monitoring market response. Payment activation development happens as part of the company's vertical strategy: an example is collaboration with POS providers to integrate cashless payment data for store management BI and data reporting to large commercial property headquarters. Investment size varies by partnership and use case, with a focus on building reusable, non-custom architectures to avoid excess cost. Development timelines are extended as requirements are refined with clients.

Q: How does the merchant portfolio review impact operations, and what type of merchants are being adjusted? How does this affect GMV vs take rates? / A: Management is applying tighter standards to transactional merchant models that do not generate consistent recurring revenue, as a risk management measure. This does impact overall GMV growth, but has minimal negative impact on take rates, and alternative growth from other merchants is being pursued to offset the slowdown.

Q: What is the company's view on the faster growth in transaction volumes compared to GMV, and will this trend continue? / A: The gap comes from growing penetration of low-value everyday use merchants, which generate more transactions per yen of GMV. Management expects this trend to continue going forward.

Q: Is the 60,000-70,000 annual net active ID growth target conservative, and is there upside to the 1,000,000 2033 target from large deals? / A: The target is based on historical track record and is conservative but achievable. There is clear upside from large new client wins that can push the total above 1,000,000 IDs; the company discloses ID breakdown by type (terminal, device-less, IoT) to avoid misinterpretation of what drives revenue.