ProjectHoldings,Inc. Q4 FY2025 earnings call

Operational and Governance Reform

• 2023 to 2024, the company faced overlapping headwinds: increased employee burden from rapid organizational expansion, a former executive scandal, and higher fixed costs from office relocation, leading to a temporary loss in 2024. Starting in 2024, management implemented business reforms including personnel system overhaul and governance strengthening.
• The result of reforms was lower turnover, higher in-house production ratio, and improved profitability; the company absorbed the impact of 2 group companies leaving the group in 2024 and achieved full-year profitability in 2025.
• Two operational changes were introduced for this earnings call: 1) Simplified presentation via slide projection only, no on-camera appearance from management; 2) Expanded participation eligibility from only institutional investors, analysts and media to include existing individual shareholders, who were invited via the shareholder benefit platform.

Digital Transformation Business Operational Highlights

• Key KPIs: Available person-months for operation increased steadily throughout 2025, driven by lower turnover since Q2 2024 and strong hiring results. Utilization rate stabilized at the mid-90% range, and consultant unit prices improved, especially in Q4 2025, with +7.0% YoY and +4.3% QoQ growth.
• Human capital initiatives: After high turnover in early 2023, the company implemented multiple measures including revision of personnel evaluation systems, updated compensation tables, strengthened internal communication, and improved onboarding and training. Turnover dropped to ~15% in 2025, and this low level is expected to continue in 2026. The company maintains a culture that enables young talent advancement: the average age of newly appointed managers in 2025 was 28.6 years old.

DX×Technology Business (artwize) Operational Highlights

• The business provides system development and software testing support services, and has built a positive growth cycle: it prioritizes building a engineer-friendly working environment, which has led to strong recruitment. The brand has gained external recognition (selected as one of the Best Venture 100, with management featured in multiple media outlets), which further improves recruitment outcomes.

DX×HR Business (Dr.健康経営) Operational Highlights

• Core business is industrial physician dispatching and corporate health management support. New public health nurse services launched in late 2023 have driven new lead generation and large contract acquisition, with 35 completed service contracts accumulated as of the end of 2025.

SG&A Cost Update

• From Q3 to Q4 2025, recruitment costs decreased further due to temporary hiring slowdown in the second half. However, higher performance-based bonuses from full-year results beating plan increased labor costs, and other SG&A remained at the same elevated level as Q3 (which had one-time special factors) due to end-of-period cost impacts. This led to a temporary increase in SG&A as a percentage of sales; management notes this increase is driven by temporary factors, will continue to actively invest in recruitment while optimizing other costs.

1. Digital Transformation Business: Q4 2025 sales were +4.6% QoQ, and +1.5% YoY (exiting the impact of DCXforce leaving the group, +12.8% YoY). For full year 2025, the segment was the largest contributor to overall profit improvement. The outsourcing cost ratio to sales decreased from 44% in Q1 2024 to 18% in Q4 2025, while the labor cost ratio to sales increased from 17% in Q1 2024 to 32% in Q4 2025. Gross margin improved from ~40% two years ago to just under 50% in Q4 2025. This segment accounts for the majority of the company's total revenue.
2. DX×Technology Business (led by artwize): Q4 2025 sales grew +21.8% YoY, driven by an increase in engineer headcount. Growth in top-line revenue and improvement in gross margin were both achieved via expanded in-house production ratio.
3. DX×HR Business (led by Dr. Kenko Keiei): Q4 2025 sales grew +47.6% YoY, driven by increased volume of industrial physician dispatching and public health nurse service deliveries. Excluding the impact of the divested company's services, top-line growth has been steady, with 35 public health nurse service contracts accumulated over 1.5 years since service launch.

Full year 2025 total company sales: 5.485 billion yen (+3.9% YoY, +15.7% YoY excluding the impact of 2 group companies leaving the group). Full year 2025 operating profit: 155 million yen, a +342 million yen increase YoY, achieving return to net profit. Q4 2025 total sales: 1.452 billion yen (+5.1% QoQ, +7.1% YoY), Q4 2025 operating profit: 89 million yen (~7x YoY, +64.8% QoQ), with EBITDA margin improved to 9.3%.

• Full year 2026 (ending December 2026) guidance: Total sales are projected to be 6.6 billion yen, +20% YoY, with all segments expected to deliver revenue growth. Operating profit is projected to be 500 million yen, +220% YoY. Digital Transformation Business targets a gross margin above 50%, driven by continued headcount growth, in-house expansion, and unit price increases.
• 2026 profit is expected to be heavily concentrated in the second half: Similar to 2025, recruitment costs and new graduate labor costs are concentrated in the first half, while the profitability benefits from unit price improvements and new hire onboarding will strengthen in the second half. This matches the 2025 pattern, where first half operating profit was 12 million yen and second half was 140 million yen.
• The company has upwardly revised its prior 3-year (2026-2028) performance guidance released at the 2024 full-year earnings call. The new plan targets maintaining average annual sales growth of ~20% driven by headcount expansion, alongside margin improvement from unit price growth.
• The 2030 EBITDA target range of 1.5 billion yen to 3.0 billion yen is maintained, but management notes that current performance puts the company on track to reach the upper end of the range (near 3.0 billion yen).
• If the profit growth plan proceeds as expected, management believes the 10 billion yen market capitalization requirement for maintaining listing on the Tokyo Stock Exchange Growth market is fully achievable.

No explicit discussion of new material risks or ongoing operational failures was provided in the available transcript. Management has already addressed prior issues including high turnover, organizational overexpansion, governance gaps, and the impact of group company departures, and reports that these challenges have been resolved through successful reform.

Q: Why is 2026 profit expected to be heavily concentrated in the second half?

A: As explained earlier, similar to 2025, new graduate labor costs and aggressive front-loaded recruitment push all related costs to the first half. Meanwhile, the profitability benefits from training and new hires becoming fully productive strengthen in the second half, which is a structural factor. This pattern already held in 2025, when first half profit was 12 million yen and second half profit was 140 million yen, a very large second half concentration. While 2026 is not expected to have as extreme a concentration as 2025, it will still have significantly higher profit in the second half compared to the first half.

Q: Why is the projected 2026 operating profit increase (+220% YoY) so much larger than the projected sales increase (+20% YoY)?

A: There are two main reasons. First, alongside sales growth, we are continuing to improve profitability via higher in-house production ratios and higher unit prices, especially in the Digital Transformation business and to some extent in the DX×Technology business, where gross margin improvement trends are clear. This margin improvement is expected to continue in 2026, which is why profit growth will outpace sales growth. Second, our cost structure has a relatively large share of fixed costs such as office rent, with relatively smaller variable costs. As sales grow, operating leverage drives margin improvement, a benefit that will hold not only in 2026 but also over the medium to long term, which is why our medium-term plan expects profit to improve faster than the 20% annual sales growth rate.

Q: Is the performance guidance conservative or aggressive?

A: I would characterize the guidance as moderately conservative for both the single-year 2026 plan and the medium-term plan. For the single year: while we do project some unit price improvement, we have not baked in the same rapid improvement pace we achieved in Q4 2025 into the plan. We have also assumed hiring pace matches historical results, and have not built in very aggressive hiring growth. In the prior year, we had very fast hiring in the first half, saw a slight utilization decline in Q2, and slowed hiring in the second half. If we can hire aggressively throughout 2026, we could end up with more headcount than currently projected, and upside to available operating person-months. For the medium-term plan: we have only baked in organic growth, and have not included any contributions from new business lines or M&A. Management is actively evaluating these opportunities, and if they deliver solid contributions to performance, we will be able to exceed our current targets. For that reason, the current guidance is conservative.