FP Partner Inc. Q2 FY2025 earnings call

• Core Business Strategy Shifts
  • The firm is shifting from partner-led customer acquisition to in-house customer acquisition and contract transfer business, driven by upcoming insurance industry regulatory changes
  • Focus on expanding existing policyholder follow-up services, launching the "Connected Money Doctor" initiative to act as a long-term "family doctor for finance" for clients
  • Prioritize growing contract transfer business, which is seeing tailwinds from increasing agency closures ahead of insurance law amendments, with Q2 inquiry volume hitting an all-time high including multiple large-scale deals
• Operational & Infrastructure Updates
  • Fully overhauling the core system via a co-development partnership with hokan to prepare for upcoming regulatory amendments and new industry guidelines
  • Continues expanding national office footprint, reaching 186 locations as of the end of May 2025
  • Has nearly completed all required preparations for the proposed amendments to the "Comprehensive Supervisory Guidelines for Insurance Companies", with the core system overhaul addressing all remaining requirements
• Growth Initiatives
  • Expanding the "Money Doctor Premier" business, targeting 50 locations by the end of the 2026 November term from the current 33, with a full-year target of 2.5 billion yen in new policy value
  • Expanding financial literacy education with the "Manesuku" program, growing to 10 corporate clients with 2 new partner firms added recently
• People & Talent Status
  • Total sales employees reached 2,522, a 2.4% year-over-year increase, but net growth was only 4 employees for the quarter, due to increased departures of unprofitable employees after a compensation system change and delayed joining decisions for high-performing external recruits
• Governance & Capital Strategy
  • Already met the Prime Market listing requirement of 35% trading ownership, reaching 35.36% as of the end of May 2025, and will continue improving liquidity via stock options and staged selling by executives and large shareholders
  • Maintains a cumulative dividend policy with a 45% target payout ratio and continues full planned shareholder returns, maintaining a 94 yen per share dividend and existing shareholder benefit program for this period

The transcript does not break out separate financial results for distinct product segments. All reported results are consolidated: total revenue for the second quarter was 16.433 billion yen, a 4.1% year-over-year decrease. Operating profit was 1.477 billion yen, a 45% year-over-year decrease. Interim net profit was 0.973 billion yen, a 47.4% year-over-year decrease. Key performance by business line only includes: 1) Life insurance: Life insurance fee revenue has declined since Q4 2024, with business quality support fees dropping sharply to 1.763 billion yen this quarter. 2) Continuing commission revenue: This core recurring revenue stream reached 5.355 billion yen in the prior period and continues growing steadily. 3) Contract transfer business: 13,823 agreed contract transfers this quarter, with the full-year 100,000 unit target still on track despite a large prior-year comparison. 4) IFA business: 8,363 securities accounts opened, with 30.846 billion yen in assets under custody, growing following the launch of the new NISA program. 5) Non-life insurance business: 47,221 agreed non-life contract transfers in the prior period, with a full-year sales commission target of 1.389 billion yen.

• Full-year 2025 November term guidance has been revised downward significantly from prior targets
  • New full-year revenue forecast: 32.603 billion yen, an 8.5% year-over-year decrease
  • New full-year operating profit forecast: 2.051 billion yen, a 61.5% year-over-year decrease, with an operating margin of 6.3%
  • New full-year net income forecast: 1.336 billion yen, a 65.8% year-over-year decrease
• The downward revision is driven by larger-than-expected Q2 new policy declines, which will lower the business quality support fee rate for Q3 and Q4 per the industry's fee structure rules
• Management states this downward revised guidance is set as a floor, and expects a full recovery in new policy volume starting in Q4, which will lift the fee rate for the first quarter of next term
• The core business model remains intact, and management targets a full return to growth starting in the next fiscal year

• Negative press coverage starting in June 2024, combined with ongoing regulatory inspection, has increased anxiety among sales staff, leading to a sharp rise in sales employees with zero quarterly new policy production, reduced productivity, and lower profitability
• The ongoing regulatory inspection has created external misperceptions of wrongdoing, which has further weighed on sales staff morale and increased turnover
• New policy volume has declined sharply despite growing sales employee headcount: new policies fell 11.2% year-over-year to 58,537 units, and prospective customer numbers fell 18.2% year-over-year, driven by lower active sales productivity
• The lower Q2 new policy volume automatically reduces the business quality support fee rate for Q3, and low Q3 volume will reduce the fee rate for Q4, creating a downward cycle that lowers near-term profit margins
• Talent acquisition has stalled: high-performing recruits from other firms are delaying joining decisions, and increased departures have led to near-flat net sales staff growth, limiting near-term growth capacity

Q: After the publication of the new supervisory guidelines in May 2025, have field sales staff motivation recovered, and are there early signs of improvement? Is there a risk that lower new policy volume has damaged the company's brand value with customers? / A: Management expects that clearly communicating the company's strategy and compliance with new regulatory requirements will build employee confidence and drive positive change in the field. No sharp increase in policy cancellations or brand damage has been observed to date. The main driver of lower new policy volume is reduced activity levels from previously productive employees, not negative customer sentiment, and more sales staff are already sharing positive outlooks.

Q: Is the expectation that Q4 2025 will see improvement driven by the company's new initiatives, correct? Are there any underlying structural issues beyond press coverage and regulatory inspection that are hurting motivation? / A: Yes, management expects to see improvement starting in Q4. In June 2025, the CEO held direct dialog with all sales staff across regional training sessions to address misinformation and anxiety, and unease has gradually eased. The main cause of slowdown is the psychological impact of the ongoing regulatory inspection, not structural problems. As inspection concludes and regulatory guidance clarifies in the second half, the field is expected to recover.

Q: With the inspection still ongoing, is full resumption of sales activities difficult for employees? / A: It is true that full resumption is challenging in the current ongoing inspection environment. Ongoing inspection has fueled external misinformation and defamation that the company engaged in wrongdoing, which has worsened employee morale anxiety. Direct communication with all staff last month has reduced some anxiety, but it has not been fully eliminated, and management will continue addressing concerns carefully.