Simplex Holdings,Inc. Q2 FY2026 earnings call

• Overall H1 Performance
  • H1 revenue hit 27.801 billion yen, 27.1% YoY growth, exceeding the prior forecast by 551 million yen. Gross margin was 43.9%, 4.3pp YoY increase, and operating profit hit 7.055 billion yen, 80.2% YoY growth, exceeding the prior forecast by 586 million yen, with an operating margin of 25.4%.
  • Order backlog hit a record high 22.3 billion yen, 3.9% YoY growth, with 16.2 billion yen scheduled to be recognized in the current fiscal year. The slower growth of order backlog is due to the short contract term of strategy/DX consulting, which makes it less likely to accumulate in backlog.
• Operational Updates
  • Strategy/DX Consulting (Crosspier): In its 5th year of operation, it is on track to exceed 10 billion yen in full-year revenue, with 40% of revenue from financial sector and 60% from non-financial public and tech sectors. 18 shared clients across Crosspier and Simplex, demonstrating synergy. Headcount is on track to grow from 350 to 500 by March 2026, and H1 revenue reached 4.8 billion yen, 42% of the full-year 11.5 billion yen target, on track.
  • Capital Markets: Two large exchange projects are in progress: the private exchange project has moved to testing phase, and the public exchange project will enter development phase in H2. Exchanges have become a new revenue pillar in addition to traditional large bank and brokerage clients.
  • Financial Retail: Deep partnership with SBI Securities, with 5 billion yen in revenue from SBI group last fiscal year. Launched OTC CFD trading service recently, and built the issuance/redemption system for Japan's first yen-pegged stablecoin JPYC. Web3 investment will accelerate in H2 after preparation in H1.
  • Enterprise DX: The fastest growing segment, with 40% of revenue from Japanese government agency projects. Won a large new project from USS, a major used car auction operator, split into phased contracts.
• Hiring
  • 250 new graduate hires are confirmed for April 2026 entry. As of October, 187 mid-career hires are confirmed, on track to hit the 200-250 target, close to 250. Total average engineer/consultant headcount including partners is projected at 2,170 for the full year, unchanged from initial plan.
• Corporate Actions
  • 1-for-4 stock split scheduled with November 30 record date to improve share liquidity. Dividend raised from 65 yen to 72 yen, equal to 18 yen per share after split. Target dividend payout ratio is 40%.

By service type:

1. Strategy/DX Consulting (Crosspier): 4.838 billion yen in revenue, 51% YoY growth, contributing 17.4% of total H1 revenue. Gross margin was 46.8%, slightly below initial forecast due to temporary lower utilization from aggressive hiring.
2. System Integration: 16.135 billion yen in revenue, 34.2% YoY growth, contributing 58.0% of total H1 revenue. Gross margin was 44.5%, exceeding the upper bound of initial forecast range.
3. Operation Services: 6.82 billion yen in revenue, contributing 24.5% of total H1 revenue. Gross margin was 40.1%, in the middle of initial forecast range. Lower-than-expected performance-based revenue was offset by price hikes and productivity improvements.

By business domain:

1. Capital Markets: 8.819 billion yen in revenue, 14.6% YoY growth
2. Financial Retail: 10.324 billion yen in revenue, ~20% YoY growth
3. Enterprise DX: 3.819 billion yen in revenue, 63.2% YoY growth

• Full-year revenue guidance revised upward to 57 billion yen, 1.5 billion yen increase from the prior revision, 20.3% YoY growth. Full-year operating profit guidance is 14 billion yen, 29.6% YoY growth, with an operating margin of 24.6%. Gross margin is projected at 43.7%.
  • 79% of the 57 billion yen full-year revenue target is already visible (including H1 actual, recognized portion of order backlog, and unaccounted success fee), so achievement probability is high. Success fee is projected at 1.7 billion yen for the full year, down from initial 1.9 billion yen, after a weaker H1.
• Service type full-year projection: System Integration revenue revised up 1.5 billion yen to 31.5 billion yen, with the 1.5 billion yen increase split equally 500 million yen each across Capital Markets, Financial Retail, and Enterprise DX.
• Medium-term plan (Chuke 2027) progress: The plan targets 60 billion yen revenue and 15 billion yen operating profit with 25% operating margin for fiscal 2027 (final year). Current growth is outpacing the linear plan, and management now expects fiscal 2027 revenue could reach 63-65 billion yen (close to 65 billion), and 25% operating margin is now considered achievable after H1 performance exceeding 25% margin.
• Long-term Vision1000 (100 billion yen revenue target): Originally projected for 2033 under linear growth, exponential current growth could bring this forward by 2 years, and even 2030 is achievable depending on H2 and next fiscal year performance. Three key priorities are: securing large clients with over 5 billion yen annual revenue, building less labor-intensive leveraged business models (focused on web3 and generative AI), and breaking through talent acquisition constraints, supported by generative AI to improve productivity without proportional headcount growth.
• ROE is projected to exceed 18% if 14 billion yen operating profit is achieved, exceeding the medium-term target, moving closer to the 20% ROE target.

• The 80.2% YoY growth in operating profit is partially inflated by difficult conditions (large project cancellation) in the prior year H1.
• Strategy/DX Consulting has short 1-3 month contract terms, which will lead to more muted order backlog growth as its revenue share increases, creating potential misinterpretation of business momentum.
• Success-based revenue in operation services came in lower than expected in H1.
• Lower R&D spending in H1 due to heavy customer project demand shifting engineer resources away from R&D.

Q: The upward revision to full-year guidance reflects H1 revenue upside from shifting unspent R&D engineer resources to client projects, and the new plan increases H2 R&D spending alongside higher sales. Is overall resource capacity sufficient to hit both targets? / A: The increased R&D budget for H2 (from 1 billion to 1.1 billion yen) is to accommodate the R&D work that was delayed in H1, so the company plans to execute it systematically to avoid further under-delivery. Hiring is progressing well, and price pass-through of higher wage costs is moving faster than expected, so the full-year sales target is fully achievable. (212 words)

Q: The Q2 order total does not include large one-off projects, is it correct that this is broad-based growth from small and medium-sized projects? / A: The largest contract in Q2 is just under 500 million yen, so the growth is indeed from broad-based accumulation of small and medium projects with no transitory one-off factors, matching this understanding. (101 words)

Q: Why did you raise the quarterly order target range, and what large pipeline projects support this? / A: The large multi-year USS project was already announced, and only the requirements definition phase was booked in Q2, with additional phases coming in later quarters. Several other large projects are also progressing in negotiations, so we raised the quarterly order range from 13.5 billion ±2 billion to 14.5 billion ±2 billion yen to reflect this overall progress. (112 words)

Q: What is your current view on the productivity improvement potential from AI utilization? / A: AI is a top priority for R&D in H2. Individual employees are already using AI for daily work, but the company has not yet unified cross-organizational processes. Pilot projects are currently testing the impact of company-wide AI adoption, and after verifying results, the company will roll out an optimized company-wide framework to improve productivity and set quantitative targets. (113 words)