circlace (5029) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, revenue increased but profit declined substantially, making the restructuring of profitability a key challenge. Revenue expanded to ¥3.202B (¥2.701B in the same period of the previous year, +18.5%), while operating income declined to ¥0.011B (¥0.052B, -78.3%). Ordinary income was ¥0.009B (-83.7%), and quarterly net income attributable to owners of the parent was limited to ¥0.004B (-93.9%). The primary factor was a decline in the profit margin of the core Consulting Business, partially offset by a reduction in losses in the growing AORA NOW Business.

Factors Affecting Performance

【Revenue】Revenue was ¥3.202B, up +18.5% year on year. Revenue from the Consulting Business was ¥2.546B (+7.7%), while revenue from the AORA NOW Business was ¥0.656B (+94.3%). The latter drove growth, increasing its revenue composition from 12.5% to 20.5%.

【Profit and Loss】Gross profit was ¥1.350B, and the gross margin was 42.2%, down approximately 2pt from 44.2% in the same period of the previous year. SG&A expenses were ¥1.339B (+17.2%), slightly below the revenue growth rate; however, the deterioration in the gross margin could not be absorbed, and the operating margin contracted from 1.9% to 0.3%. The segment profit margin of the Consulting Business declined from 8.9% to 2.2%, becoming the primary cause of the deterioration in company-wide profitability. Corporate income taxes and other taxes of ¥0.037B were recorded against pretax income of ¥0.014B, resulting in a high effective tax rate of 257.5%. Accordingly, the results are characterized by higher revenue but lower profit.

Segment Analysis

The Consulting Business recorded external customer revenue of ¥2.546B (+7.7% year on year) and segment profit of ¥0.057B (-73.1%), with its profit margin declining approximately 6.7pt from 8.9% to 2.2%, placing the greatest pressure on company-wide profit. The AORA NOW Business recorded external customer revenue of ¥0.656B (+94.3%) and a segment loss of ¥0.046B, improving from a loss of ¥0.160B in the same period of the previous year. Its loss margin narrowed substantially from 47.4% to 7.0%, indicating that the business is expanding its revenue scale while reducing the size of its deficit. Company-wide profit remains dependent on the Consulting Business, making the recovery of profitability in that business the key focus going forward.

Key Financial Metrics

【Profitability】The operating margin was 0.3%, down approximately 1.6pt from 1.9% in the same period of the previous year, while the gross margin also deteriorated from 44.2% to 42.2%. The net profit margin remained low at 0.1% on a basis attributable to owners of the parent.【Cash Flow Quality】Accounts receivable of ¥0.455B increased only slightly from ¥0.431B in the same period of the previous year, below the 18.5% revenue growth rate, indicating that the relative pace of growth in accounts receivable compared with revenue has been contained.【Investment Efficiency】Annualized ROE was -3.2%, while annualized ROIC was approximately 1.2%, below the cost of capital. Although total asset turnover was high, the low net profit margin was the primary cause of weak ROE.【Financial Soundness】The equity ratio was 58.6% (improving from 54.5% in the previous year), the current ratio was approximately 140.3%, and the D/E ratio was 0.71x, indicating restrained leverage. Cash and deposits declined substantially to ¥0.323B from ¥0.833B in the same period of the previous year.

Cash Flow Analysis

As no statement of cash flows has been disclosed, funding trends are analyzed based on changes in the balance sheet. While cash and deposits declined by ¥0.510B from ¥0.833B in the same period of the previous year to ¥0.323B, property, plant and equipment increased from ¥0.020B to ¥0.193B, and investment securities increased from ¥0.059B to ¥0.109B, suggesting that funds were increasingly allocated to business investment. Accounts payable increased from ¥0.041B to ¥0.111B, mitigating part of the short-term funding burden. Accounts receivable increased only slightly from ¥0.431B to ¥0.455B, indicating that the collection cycle remained broadly stable relative to revenue growth. The decline in cash balances amid low profit levels indicates the need for continued monitoring of investment activities and working capital management.

Earnings Quality

Against operating income of ¥0.011B, non-operating income of ¥0.006B (including foreign exchange gains of ¥0.002B and interest income of ¥0.001B) and non-operating expenses of ¥0.008B were recorded, resulting in ordinary income of ¥0.009B. Extraordinary income of ¥0.005B lifted pretax income to ¥0.014B, but this was a temporary factor and does not indicate an improvement in the earning power of the core business. Corporate income taxes and other taxes of ¥0.037B exceeded pretax income, resulting in an extremely high effective tax rate of 257.5%; the tax burden significantly constrained the conversion into net income attributable to owners of the parent of ¥0.004B. The divergence between ordinary income and net income attributable to owners of the parent reached approximately 55.6%, with the effects of tax expenses and profit allocation, including non-controlling interests, increasing the volatility of final profit.

Earnings Forecasts and Guidance

The full-year company forecasts are revenue of ¥4.600B, operating income of ¥0.350B, ordinary income of ¥0.350B, and net income attributable to owners of the parent of ¥0.230B. The cumulative Q3 progress rates were 69.6% for revenue, 3.1% for operating income, 2.6% for ordinary income, and 1.7% for net income attributable to owners of the parent, all substantially below the standard 75% progress level. Achieving the plan requires Q4 operating income of ¥0.339B (required operating margin of 24.3%), implying a substantial improvement from the cumulative Q3 operating margin of 0.3%.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year forecast dividend is also ¥0, indicating that the no-dividend policy remains in place. The payout ratio is 0%, and no dividend burden has arisen while net income attributable to owners of the parent remains low. With cash and deposits declining year on year, capital allocation prioritizes business operations and growth investment over shareholder returns.

Risk Factors

1. Risk of deteriorating profitability in the core business: Although the Consulting Business increased revenue (+7.7%), segment profit declined 73.1%, and its profit margin fell from 8.9% to 2.2%. Company-wide profit depends on this business, and a delay in its recovery would make it difficult to achieve the full-year plan.

2. Risk of failing to achieve the full-year plan: Against the full-year operating income forecast of ¥0.350B, the cumulative Q3 progress rate was only 3.1%. The required Q4 operating margin is 24.3%, premised on a sharp improvement from the cumulative Q3 actual result of 0.3%.

3. Profit pressure from the high tax burden: Corporate income taxes and other taxes of ¥0.037B were recorded against pretax income of ¥0.014B, resulting in an effective tax rate of 257.5%. The heavy tax burden during a low-profit period is constraining improvements in net income attributable to owners of the parent and ROE.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is substantially below the industry median, placing the company toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, placing the company toward the upper end of the industry.

※Source: Company research

Key Points from the Earnings Results

1. While the revenue growth rate of 18.5% exceeds the industry median, the operating margin of 0.3% is substantially below the industry median of 8.3%, indicating that converting revenue growth into profit remains a challenge.

2. The AORA NOW Business recorded revenue growth of +94.3%, while its loss margin improved from 47.4% to 7.0%, confirming its positioning as a growth business based on the earnings data.

3. The full-year operating income progress rate was only 3.1%, and the operating margin required in Q4 is 24.3%, meaning that the earnings data presuppose a substantial improvement in profitability toward the fiscal year-end.

Theoretical Share Price (Reference Value)

Sensitivity: ¥316–¥337 at ±1% in the cost of equity, and ¥323–¥331 at ±0.1 in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-08 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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