sinops Inc. Q4 FY2025 earnings call

Past Mid-Term Strategy Review (through 2025)

• Core strategic pillars were growth of existing cloud services and expansion into new business areas using core demand forecasting technology:
  • New business expansion: DeCM-PF: Successfully achieved monetization as planned, surpassed 100 participating companies including retailers, wholesalers, and manufacturers (most participants are manufacturers). Revenue growth is proportional to the number of participating retailers, so the company will intensify sales efforts to add more retail partners.
  • New business expansion: sinops-WLMS (labor hour improvement AI service): Launched three component services in 2024: sinops-LOG (work time visualization), sinops-WORK (optimal scheduling), and sinops-LEARN (on-site e-learning). In 2025, focused on functional improvement, quality enhancement, and base building for full-scale sales expansion. Currently running pilot trials and horizontal deployment with multiple partner companies, preparing for ARR contribution post-2028.
  • New business expansion: Cross-industry deployment: While inquiries continue from drugstores and convenience stores, the company concentrated management resources on deepening the food retail space (where it has strong competitive advantage) from 2024 to 2025, prioritizing penetration of existing and new services in this market.
  • Existing cloud service growth: Expand services per store: Continuously strengthens new service development, launched sinops-CLOUD FoodCAS (food label creation support service) in 2025. This service reduces label creation time and prevents errors, and drives cross-selling of automatic ordering for prepared food/fresh food categories. Completed successful pilot testing for fruit/vegetable categories, with significant room for further cross-selling and expansion.
  • Existing cloud service growth: Solidify #1 market share: Has maintained #1 market share for 3 consecutive years since tracking began, though share did not grow as much as planned in 2025.

New 3-Year Mid-Term Strategy (2026-2028)

• Overarching goal: Maintain 15% average annual growth centered on the existing sinops-CLOUD automatic ordering business through 2027, then accelerate growth via the two new businesses (DeCM-PF and sinops-WLMS) starting from 2028 to achieve discontinuous growth post-2028. Will continue investing significant management resources into new businesses.
• Three core initiatives to deliver the strategy:
  • 1. Drive ARR growth: Deepen existing business: There is substantial untapped expansion room across product categories: grocery/processed foods have high automatic ordering penetration, daily delivery items have 60% penetration (40% remaining), 90% of prepared food ordering is still manual (high growth opportunity as supermarkets prioritize prepared food differentiation), and fresh categories (meat/produce) have almost no penetration (successful pilot completed, large expansion room). The company's competitive advantage is offering all categories in a single integrated service. Current average services per store is 3.9, with at least 6 additional services of expansion room on average, so expanding to existing users remains a key priority.
  • 1. Drive ARR growth: Build new businesses:
    • DeCM-PF: Currently in the pre-profit investment phase, prioritizing platform expansion over short-term revenue. The service has a unique three-way win model: the company extends order lead time for retailers, collects platform fees from manufacturers, and shares a portion of fees with participating retailers. This creates incentives for all parties, and once established as an industry infrastructure, it has high stickiness and creates strong synergies with the company's existing demand forecasting services. Will continue investing to establish the platform.
    • sinops-WLMS: Targeting ARR contribution post-2028, currently focused on building successful use cases, refining the product, and accumulating implementation know-how. Reorganized the former New Business Development Department into the dedicated WLMS Promotion Department in January 2026 to accelerate penetration, and will concentrate resources on building the base for full 2028 launch.
  • 2. Productivity improvement + 3. Customer Success:
    • Implemented organizational restructuring to support growth: newly established a Technology Management Department, moved the solution team from sales to the new Technology Management's Solution Development Department to speed up response to complex technical requirements for large-scale projects, reduce communication costs, and improve project quality. Merged customer support and infrastructure into a new integrated Customer Support Department. Renamed the new business unit to WLMS Promotion Department to clarify focus on that business. These changes will drive per-employee productivity improvement and reinforce the company's on-site focused improvement approach.

Stock (recurring revenue) segment: Total stock revenue increased by 214 million yen (21.4 million yen converted: 214 million yen = 2.14 billion yen? Wait no, correction: 2億1400万円 = 214 million yen = 2.14 billion yen no, conversion rule: 2億1400万円 = (214 / 10) = 21.4 billion yen? No wait, original: 2億1,400万円 is 214 million yen, which is 2.14 billion yen? Wait 1億 = 0.1 billion, so 2.14億 = 0.214 billion? Wait I'm mixing up, let's do correctly: 20億4000万円 = 2040 million yen = 2.04 billion yen (because 20.4億 = 20.4 /10 = 2.04 billion yen, correct). Stock sales: 2億1400万円 increase year-over-year from two years prior, 16.6% growth, accounts for 74.1% of total revenue, exceeding the internal 70% target. New business segment: DeCM-PF has started recognizing cloud revenue incrementally, and sinops-WLMS is in pilot/development phase with no material revenue contribution yet. Non-stock (one-time/implementation support) segment: Implementation support revenue grew only 2.5% year-over-year in 2025. Total company 2025 results: Total revenue 2.04 billion yen (20億4000万円), operating profit 309 million yen (3億900万円, nearly double year-over-year), operating margin 15.2%. ARR (Annual Recurring Revenue) reached 1.586 billion yen (15億8600万円), 18.8% year-over-year growth, below the planned 1.7 billion yen target due to slower new customer acquisition. Paid cloud accounts increased by 1,243 to 13,278 total. NRR (Net Revenue Retention) remained above 100%. Total operating expenses (cost of sales + SG&A) increased 6.8% year-over-year to 1.731 billion yen (17億3100万円).

• 2026 December fiscal year guidance:
  • Total consolidated revenue: 2.344 billion yen (23億4400万円), 14.9% year-over-year growth
  • Operating profit: 390 million yen (3億9000万円), 26.1% year-over-year growth (profit growth outpaces revenue growth due to continued cloud gross margin improvement, even with continued upfront investment in DeCM-PF, WLMS, and operational infrastructure)
  • Revenue composition guidance: Almost no package sales are expected; growth is centered on cloud service revenue growth and associated acceleration of implementation support
  • ARR guidance: 1.67 billion yen (16億7000万円), 5.3% year-over-year growth, which is a conservative target relative to historical growth rates. This downward revision in expected growth incorporates potential service adjustments from anticipated consolidations and restructurings among some existing customer companies. Implementation support revenue is expected to grow 59% year-over-year, driven by strong upsell/cross-sell momentum for sinops-CLOUD and expanded sales headcount to increase the number of closed deals.
  • Strategic direction for 2026: Prioritize deepening existing business and driving market penetration of DeCM-PF and WLMS, with the goal of reaccelerating ARR growth in 2027 and 2028.
• Shareholder return guidance:
  • Maintains the existing policy of targeting a 40% payout ratio. 2025 full-year dividend is set at 16 yen per share (8 yen interim, 8 yen final). 2026 full-year dividend is planned at 17 yen per share, marking the 4th consecutive year of dividend increases. The company will continue pursuing stable shareholder returns going forward.
• Mid-term growth guidance: Exisiting core business will deliver 15% average annual growth through 2027, with new businesses contributing meaningful additional growth starting from 2028.

• Food supermarket market share and total contract count saw a slight decrease in 2025, driven by: 1) annual update of the target list used to calculate share denominator, 2) failure to acquire a new large customer during the period, 3) cancellation of contracts from customers acquired via mergers by larger companies, 4) contract cancellation from a wholesale customer due to corporate consolidation in Q2. The impact on existing stock revenue was minor, and the company expects growth in share and contract count in 2026.
• 2025 ARR came in below the initial 1.7 billion yen plan, due to slower than planned new customer acquisition that could not be fully offset by horizontal expansion from existing large customers.
• DeCM-PF platform building is acknowledged to be high difficulty, though the company continues to invest to establish it as an industry infrastructure.
• The conservative 2026 ARR guidance incorporates the risk of potential service cancellations and adjustments from expected corporate consolidations and restructurings among existing customers.

Q: Your business is categorized as SaaS. Given recent discussion of "SaaS death", can you explain where Synops falls in terms of the difference between SaaS that will die vs SaaS that will not die?

A: In my view, "SaaS that dies" are services that can be automated and replaced by AI, leading to reduced need for the service. "SaaS that does not die" are services that are hard for AI to replace at this point in time. While I cannot say what will happen 20 years from now, our services fall into the hard-to-replace category today. Synops services are deeply rooted in on-site retail operations and are tightly integrated with human work processes. While we do use AI to automate certain parts of our offering, the overall service has very strong ties to on-site operations, so I believe our business qualifies as "SaaS that will not die" in the current environment.

Q: Last year, package sales hit 225% of plan and support hit 107% of plan, while cloud came in at 94% of plan. It seems package sales have high margins, so I would expect profit to grow strongly with this over-delivery. Is my understanding incorrect?

A: It is true that package sales have higher margins. Generally, cloud services generate the same cumulative revenue as a package sale over 3 to 5 years, but package sales have a unique characteristic: after a one-time installation, there is typically a 10-year lag before the next demand comes (for example, from OS migrations). Our target customer base is around 1,000 companies, which is not a large total pool compared to other cloud service providers. So while package sales deliver high short-term margins, over a 5+ year horizon, the margin structure trends downward. It is true that last year's package sales did contribute to profit, but that contribution was not enough to make up for the cloud shortfall, leading to the overall plan miss we reported. So your general direction of understanding (that package sales have high margins) is not wrong, but the over-delivery in package was not enough to offset the cloud miss to hit overall profit plans.

Q: Why is implementation support growth so high in the 2026 plan?

A: This year we are strengthening cross-selling and have expanded our sales team, so we plan to increase the total number of completed deals compared to last year. Increasing the number of closed deals naturally leads to higher implementation support revenue. The strong growth plan does not come from a single large deal; it is based on the plan to grow the total number of closed deals, which results in higher expected implementation sales.