Simplex Holdings,Inc. Q4 FY2025 earnings call

Overall Financial Performance

• FY2025 March revenue reached 47.4 billion yen, 16.4% YoY growth, 600 million yen above the revised October 2024 guidance, marking a record high.
• Operating profit hit 10.804 billion yen, 22.1% YoY growth, 200 million yen above guidance, with an operating margin of 22.8%, also a record high.
• Profit after tax was 7.781 billion yen, 25.6% YoY growth, boosted by a over 400 million yen tax cut from the wage increase promotion tax scheme.
• Gross profit margin landed at 41.4%, impacted by the cancelled insurance project. SG&A was 8.834 billion yen (18.6% SG&A ratio), lower than the steady state 20% due to paused 500 million yen planned R&D investment in insurance solutions.

Operational KPIs

• Orders: Q4 FY2025 orders reached 14.7 billion yen, 23.5% YoY growth. Accumulated order backlog hit a record 21.6 billion yen, 13.3% YoY growth.
• Human Resources: 223 new graduate hires joined in April 2025; 2026 April new graduate entry target is 250 candidates. Mid-career hires reached 172 in FY2025 (beating the 150 target), 2026 FY target is 200-250. Average total engineers/consultants (including on-site BPs) hit 1,912 in FY2025.

Strategic Updates

• Insurance Segment Overhaul: After the cancelled large legacy system renewal project in H1 FY2025, the firm revised its strategy. Xspear Consulting (its subsidiary) will now lead the As-is (current state) assessment step for insurance legacy system projects, with all insurance domain experts transferred to Xspear to support clients who lack internal legacy system experts, before Simplex handles execution. Organizationally, insurance development and maintenance operations are merged into Financial Retail starting FY2026.
• Segment Growth Drivers: Capital Markets has a growing footprint in private/public exchange projects; Financial Retail is seeing growing interest for JV partnerships like the one with SBI Holdings, opening new project opportunities; Enterprise DX is growing quickly with government and Digital Agency large projects, leveraging synergy with Xspear consulting.
• Capital Allocation and Shareholder Return: Free cash flow exceeded 100 billion yen in FY2025, net debt is ~1.3 billion yen after completing the 50 billion yen share buyback. ROE rose to 16.2%. Target dividend payout ratio is ~40%, planned 2026 FY dividend is 65 yen per share. For future investment needs, the firm will prioritize debt financing (can borrow up to ~350 billion yen, 3x EBITDA, without equity financing), targeting M&A of core competency-related firms.

By Business Segment (FY2025 March):

1. Strategic/DX Consulting: 7.51 billion yen, meeting the revised October 2025 guidance. It accounts for ~15.8% of total revenue.
2. Capital Markets: 15.875 billion yen, accounts for ~33.5% of total revenue.
3. Financial Retail: ~15.0 billion yen, accounts for ~31.6% of total revenue.
4. Insurance: ~3.2 billion yen, impacted by the first half large project cancellation, accounts for ~6.8% of total revenue.
5. Enterprise DX: 5.73 billion yen, 105.1% YoY growth (more than doubling), 430 million yen above revised October 2025 guidance, accounts for ~12.1% of total revenue.

By Service Type (FY2025 March):

1. Strategic/DX Consulting: 7.51 billion yen, gross profit margin of 49.7%.
2. System Integration: 26.32 billion yen, gross profit margin of 39.8%.
3. Operation Services: 13.518 billion yen, gross profit margin of 39.7%.

• FY2026 March Full Year Guidance: Target revenue of 54.5 billion yen, 15% YoY growth, with 12.7 billion yen operating profit (17.5% YoY growth), 23.3% operating margin, 43.5% gross profit margin. SG&A is budgeted at 11 billion yen (20.2% SG&A ratio), R&D will return to the steady state 2 billion yen.
• Segment Guidance FY2026 March: Strategic/DX Consulting targets 11.5 billion yen (53.1% YoY growth); Capital Markets targets 16.9 billion yen (6.5% YoY growth); Financial Retail (including merged insurance operations) targets 18.9 billion yen; Enterprise DX targets 7.2 billion yen (25.5% YoY growth).
• Service Gross Margin Targets: Strategic/DX Consulting targets 50% (±2pp); System Integration targets 42% (±2pp); Operation Services targets 40% (±2pp), resulting in a full year 43.5% consolidated gross margin.
• Medium-Term (Chukeikei 2027) Guidance: The original 60 billion yen end-of-plan revenue commitment is maintained, current growth trajectory puts on track to exceed 62-63 billion yen, with operating profit still targeting 15 billion yen. The firm expects operating margin to land in the low 20% range (below the original 25% target) due to accelerated growth investment. The 2027 end target segment breakdown is: Strategic/DX Consulting 15.5 billion yen, Capital Markets 17.0 billion yen, Financial Retail (including insurance) 19.5 billion yen, Enterprise DX 8.0 billion yen.
• Long-Term (Vision 1000) Guidance: The original target of 100 billion yen revenue by early 2030s is now targeted to be achieved 2 years early via accelerated growth, driven by adding more >5 billion yen large clients, reducing labor intensity, improving talent acquisition, and proactive M&A.

• Quarterly order volatility: Simplex's quarterly orders have high inherent volatility with no clear seasonal pattern, so the firm provides a wide target range and recommends tracking the 4-quarter moving average trend instead of individual quarter results.
• Large legacy system renewal project risk: Large-scale legacy system replacement projects carry high risk of scope and schedule creep if proper As-is assessment is not completed upfront, as experienced in the cancelled FY2025 insurance project.
• System integration project risk: All system integration projects carry inherent risk of becoming unprofitable, contributing to possible 2pp gross margin volatility.
• Operation services volatility: Performance-based revenue for shared operation services fluctuates with client transaction and profit levels, and unexpected production outages can lower quarterly gross margin.
• Talent constraints: Growth is currently constrained by the availability of high-quality talent, requiring aggressive hiring and new recruitment methods to meet growth targets.
• Gross margin short-term volatility: New consultant hiring can temporarily lower utilization and reduce gross margin in the short term.

Q: Why is Enterprise DX revenue growth slowing to 25.5% YoY for FY2026 after 105.1% YoY growth in FY2025? / A: The lower growth rate is expected because the segment is still small in absolute size, so percentage growth naturally slows as it scales. The 7.2 billion yen target reflects human resource constraints, not low demand. Management sees strong continued growth potential for the segment, with large pipeline opportunities.

Q: After the difficult experience with large insurance legacy system projects, how does Simplex manage risk for the upcoming large enterprise core system legacy project in the pipeline? / A: The key mistake from the insurance project was skipping the thorough As-is current state assessment step, which is especially critical because most clients no longer have internal experts who know the legacy system. For the upcoming pipeline project, the As-is assessment is already complete, and Simplex has existing experience with similar large-scale projects in financial services, so risk is limited. Going forward, the firm will always follow the structured assessment → planning → execution process for all legacy renewal projects.

Q: Why does the 2027 total 60 billion yen target have the same 19.5 billion yen figure for combined Financial Retail + Insurance as the original standalone Financial Retail forecast? / A: The overall 60 billion yen end-of-plan revenue commitment is unchanged. The segment allocation reflects shifting priority: higher-growth segments (Strategic/DX Consulting, Enterprise DX, and Capital Markets with new exchange projects) get priority resource allocation, resulting in the combined total matching the prior standalone figure.

Q: The 65 yen per share planned dividend for FY2026 equates to a 43% payout ratio, above the 40% target — what is the reasoning for this? / A: After raising the target payout ratio to 40% starting FY2024, actual payout ratios came in slightly below 40% because final earnings ended up above forecasted levels used to set the dividend. The 43% forecast for FY2026 adjusts for this past pattern to align with the long-term 40% average target.