4414.T

• Business Overview and Positioning

  • Flect is a multi-cloud integrator founded in 2005, with 385 total employees as of December 2024, focused on supporting "offensive DX" that improves enterprise competitiveness via cutting-edge cloud technology, rather than cost-cutting focused "defensive DX".
  • The company provides end-to-end one-stop services from digital service planning, design, multi-cloud development to operation, with 85.3% of 2024 fiscal year revenue coming from existing large enterprise clients, giving the flow business high stock-like revenue stability.
  • Core competitive advantages include high agility (average project duration of 3 months, repeated agile delivery to adapt to change), multi-cloud technical expertise matching optimal cloud platforms to client requirements, and cross-selling to existing clients for sustained growth.

• Operational Highlights in Q3

  • Achieved all-time record quarterly revenue and profit driven by strong DX demand and healthy project progress. The company has already launched Agentforce (Salesforce's autonomous AI agent) implementation support services and secured a proof of concept (PoC) project, with growing inbound inquiries for combined projects of AI utilization, data integration and API infrastructure construction.
  • Co-published a joint paper with Honda R&D on AI-based automatic vehicle test schedule creation that reduced 90 hours of manual work to 6 hours. Completed DX projects for Keio University (student portal site development on Salesforce EDA) and WOWOW (authentication infrastructure overhaul that improved security and performance amid growing login traffic).
  • Cloud engineer hiring exceeded plan: 353 cloud engineer/technical employees as of December 2024 (up 95 YoY), leading the company to raise its full-year hiring target from 350 to 361. Flect holds the top number of MuleSoft, Data Cloud, and Heroku certifications in Japan, with a structured training program that gets cloud-inexperienced hires to project assignment in just 1 month.

• Medium-term Growth Strategy

  • Targets over 10 billion yen revenue in FY2026 March fiscal year and Tokyo Stock Exchange Prime listing in FY2027 March fiscal year. Growth priorities include expanding multi-cloud cross-selling to increase ARPA, expanding partner channels to grow client count, and offering one-stop solutions in the fast-growing AI and data infrastructure segment centered on Agentforce.
  • Continues to improve human resource management: has a multi-layered employee support system to maximize talent investment returns, data-driven employee engagement management that has resulted in engagement scores 19pp above industry average, and selective hiring of high-capability engineers with strict selection criteria.

• Full-year FY2025 March fiscal year guidance is maintained unchanged: revenue of 8.171 billion yen (up 17.9% YoY), operating profit of 952 million yen (up 25.7% YoY), net profit of 569 million yen (up 29.2% YoY). Revenue progress through three quarters is 73.2% of the full-year target, and operating profit progress is 81.4% of target, which management describes as solid.
• The full-year earnings outlook expects no material deviation from the maintained guidance, after accounting for planned performance-based bonuses in Q4 and pre-FY2026 organizational buildout costs.
• The company's medium-term target of 10 billion yen revenue for FY2026 March fiscal year remains in place, though management acknowledges the hurdle is higher after the loss of Cariot business revenue and slower-than-expected existing client growth, but still considers the target achievable given upside potential from MuleSoft, Data Cloud and Agentforce.
• Management expects ARPA to increase in FY2026 March fiscal year, driven by cross-selling to existing clients and leveraging growth in the AI/data integration segment where Flect has core strengths.

Flect operates a single core segment: Cloud Integration Services, which provides one-stop "offensive DX" support for enterprise digital transformation. For the 9-month cumulative period through the third quarter: total revenue was 5.979 billion yen, with 91% of revenue coming from large enterprise clients. For the third quarter (single quarter): revenue was 2.07 billion yen (up 11.1% YoY), gross profit was 916 million yen (up 11.6% YoY), gross margin was 44.3% (up 0.2pp YoY), operating profit was 342 million yen (up 14.6% YoY), net profit was 210 million yen (up 3.9% YoY). Selling, general and administrative expenses were 573 million yen (up 9.8% YoY), with the SG&A expense ratio down 0.3pp YoY due to the absence of one-time education costs seen in the prior quarter. For large enterprise clients: 51 contracted clients in Q3 (up 15 YoY), 6 new large clients added in Q3, existing large client count was 45 (up 10 YoY); average revenue per account (ARPA) for large clients was 37.8 million yen (down 7.5 million yen YoY), existing large client ARPA was 42.1 million yen (down 3.6 million yen YoY); the number of large clients with quarterly revenue over 25 million yen was 24 (up 4 YoY), and total revenue from these clients was 1.721 billion yen (up 227 million yen YoY).

• ARPA has declined in Q3, driven by more new clients starting with small initial contracts and slower-than-expected expansion of existing client accounts, which creates short-term pressure on average revenue per client.
• The 10 billion yen FY2026 revenue target has a higher hurdle following the exit of the Cariot business and the current slower-than-expected existing client growth.
• Agentforce is a newly launched product globally, so it is too early to quantify its earnings contribution, and actual revenue upside depends on market adoption and Salesforce's sales expansion pace.

Q: What is the expected earnings contribution from Agentforce implementation support? / A: Agentforce is a new product Salesforce is prioritizing globally, with service launch still recent so no specific quantitative contribution can be provided currently. Management believes the market potential is very large, and has prepared three packaged service plans (Light for PoC, Medium for full business deployment, Full for end-to-end system/data integration) to drive sales growth.

Q: Will ARPA remain flat in FY2026 amid continued new client acquisition? / A: Management acknowledges that existing client growth has been sluggish in Q3 FY2025. It plans to offset this by implementing targeted fixes and leveraging growth in the AI, data infrastructure, and system integration segments where Flect has competitive strengths. The company is targeting an increase in ARPA through cross-selling to both new and existing clients.

Q: Is the 10 billion yen FY2026 revenue target still achievable after the loss of Cariot business? / A: The original plan included Cariot revenue, so the hurdle for the 10 billion yen target is indeed higher given the lost revenue and slower existing client growth. However, management notes that upside from MuleSoft, Data Cloud, and Agentforce is very promising, and the target remains an achievable goal that the company will continue working toward, with close monitoring of near-term progress.

Q: Will Salesforce's Agentforce sales expansion lead to more preferential project referrals for Flect? / A: Salesforce is hiring 1,000 AI-focused sales staff globally, and management expects Salesforce Japan to follow this expansion trend aligned with global priorities. Effective Agentforce utilization requires properly built data infrastructure and integration of disparate enterprise systems, and Flect has the top number of MuleSoft and Data Cloud certifications in Japan. It is rapidly training staff on Agentforce, and is positioned to capture upside as an end-to-end solution provider in this segment.