circlace Inc Q1 FY2026 earnings call

Overall Financial Summary

• Total consolidated revenue for Q1 2026 March fiscal year hit 1 billion yen, up 24% year-over-year, in line with full-year plan. The Q1 progress rate against the full-year revenue target reached 21.7%, exceeding the prior year's 21.2% Q1 progress rate, which management considers a strong start given the company's seasonal trend of higher revenue in the second half of the fiscal year.
• Consolidated operating loss came to 64 million yen, for an operating margin of -6.4%, which was fully budgeted and expected. The loss stemmed from 30 million yen in one-time head office relocation costs and 23 million yen in hiring and labor investments for new and global business lines. Profitability improvements from ServiceNow and other initiatives absorbed 40 million yen of these additional costs, limiting the overall loss.
• Net loss attributable to parent company shareholders was 32 million yen. The company added 13 net new employees, ending the quarter with 369 total staff, continuing expansion of the organization to support future growth. The company maintains a strong capital position with a 54.5% equity ratio, with no material issues regarding financial health.

Strategic Business Updates

• Growth Strategy & AI Expansion: Management is actively expanding into high-growth AI and data areas, strengthening global hiring to scale domestic and international projects, and growing client work leveraging Salesforce and ServiceNow AI agents. The company views AI agents as a core growth trend, noting that while Japanese enterprise adoption lags behind the U.S. and is currently in the proof-of-concept stage, management expects broader commercial adoption to accelerate in 2025.
• New Partnerships & Service Launches: • Partnered with Pasona to launch the AIO AI agent BPO service, with Salesforce Agentforce as the first solution offered, allowing clients to lower initial investment while improving operational efficiency and customer satisfaction. • Launched a full-suite AI project support and AI governance building/certification service in partnership with subsidiary Aoranau and invested firm Synthesy, leveraging the partners' combined AI expertise to support clients from strategy through implementation and governance. • Participated in the industry-academia-government AI co-creation hackathon 2025 Spring in Kobe, contributing practical expertise and technical support to develop next-generation AI talent and advance real-world AI implementation.
• Group Structure & Synergy: Circlace group now includes two consolidated subsidiaries (Circlace HT for Vietnamese system development, Aoranau for end-to-end ServiceNow support), an existing investment in Synthesy for AI-focused upstream consulting, and plans to add data governance specialist arcbricks to the group, enabling full cross-functional synergy to deliver end-to-end solutions for client IT and digital transformation needs. The Q1 head office relocation consolidated all group employees into a single location to improve internal communication and collaboration, a planned one-time investment.

The company reorganized into two new segments starting in the 2026 March fiscal year: AI&Data Innovation and SaaS service.

1. AI&Data Innovation Segment: This segment includes three sub-verticals: Salesforce business, ServiceNow business, and Microsoft Azure & MSPP / XP&A.

• Salesforce business: Revenue grew 12.9% year-over-year, outpacing the prior period's 10.9% growth rate. Large enterprise customer count increased by 28 companies year-over-year, with growing new business opportunities tied to the Salesforce Agentforce autonomous AI agent.
• ServiceNow business: Revenue grew 114.1% year-over-year (more than doubling), with new customer count up 300% year-over-year. This sub-segment delivered 280 million yen in profitability improvements that partially offset group-wide losses, with growing new opportunities tied to the Now Assist autonomous AI agent.
• Combined: All sub-verticals achieved year-over-year revenue growth, contributing to the group's overall 24% total revenue increase.

1. SaaS service Segment: This segment consists solely of the AGAVE overseas human resources and payroll SaaS platform. AGAVE revenue grew 18.1% year-over-year, with contracted user IDs up 15.5% year-over-year. The segment recently launched a new generative AI-powered helpdesk beta feature and is actively expanding AI capabilities for overseas HR workflows.

• Management maintains the full-year 2026 March fiscal year guidance published in May 2025, with no upward or downward revisions.
• Full-year consolidated revenue is targeted at 4.6 billion yen, representing 20.9% year-over-year growth, driven by expansion of Salesforce and ServiceNow businesses and new group synergy.
• Full-year operating profit is targeted at 350 million yen, a 71.9% year-over-year increase, with a planned operating margin of 7.6%. The company will continue investing for medium- and long-term growth while delivering planned profitability.
• Management confirmed that Q1 results are fully in line with the full-year plan across all key metrics (revenue, operating profit, ordinary profit).

• Trump administration tariffs have emerged as a key global macro risk since guidance was finalized in March 2025. As of Q1, there is no material impact to the company's sales pipeline or full-year financial targets, but management has observed an increase in Japanese firms holding off on investment decisions to assess the evolving tariff environment.
• The current operating loss is driven by planned one-time and strategic investments, but any slower-than-expected adoption of AI agent solutions by Japanese enterprises could delay expected revenue growth from new AI-focused service lines.
• No other material operational failures or unplanned risks were discussed in the transcript.

No formal question and answer session is included in the provided transcript.