Recovery in sales productivity and onboarding of 23 FY26 new graduates as catalysts for accelerated growth, with business portfolio restructuring driving the shift toward a profit-oriented model

Summary

For the first three quarters of FY2026 (ending September), revenue totaled JPY 8.649B (+3.3% YoY) and operating income reached JPY 241M (+5.8% YoY), maintaining top- and bottom-line growth. However, contract volumes in the Professional Talent segment fell short of plan, prompting a downward revision to full-year guidance. Operating income was cut from JPY 600M to JPY 370M (▲38.3%), and a JPY 113M goodwill impairment loss on Greenroom was booked as an extraordinary loss. Management identified headcount net additions and tiered training-driven productivity improvement as the top priority, while initiating the downsizing and exit of underperforming services within the Regional Revitalization and Solutions segments. The FY2027 business plan was also revised—revenue from JPY 16.0B to JPY 12.5B and operating income from JPY 1.0B to JPY 600M—with the expectation of accelerated growth in FY2028 when the 23 FY26 new graduates reach full productivity, bringing total sales capacity to 90.0 headcount.

Key Points (Earnings Highlights and Growth Actions)

• Management Strategy and Market Perception
  • Advances in generative AI are displacing junior consultant tasks, while demand for experienced, high-caliber professionals continues to rise
  • Following the inauguration of the second Trump administration, Japanese large-cap corporates have pulled back on ESG messaging, causing a sharp drop in PR and advertising demand at Greenroom
  • With the Growth Market's JPY 10B market cap threshold in mind, management is pivoting toward a profit-first operational improvement agenda
• Near-Term Business Progress and Drivers
  • Core segment contracts are tracking at an estimated 10,000 versus a plan of 11,400; direct sales headcount is projected at 61.5 versus a planned 65.0—both falling short
  • Contracts per salesperson per month declined to 13.1, a historical low, with new graduate and junior staff ramp-up taking longer than anticipated
  • Mid-career hiring exceeded 200% YoY, but attrition offset gains, resulting in only a marginal net increase from mid-career hires alone
  • The Solutions segment met revenue and gross profit targets, but expanded operating losses due to higher personnel costs incurred to maintain project quality
• Strategic Initiatives and Inflection Points
  • Commenced downsizing and exiting low-profitability, low-synergy businesses; explicitly committed to portfolio selection and concentration
  • Aiming to shorten ramp-up periods for new graduates and junior staff through standardized sales processes and AI-powered training
  • Began exploring commercialization of a "Professional Talent Skills Certification Platform" leveraging digital certificates
  • Established a new Social Design business targeting large enterprises, with a goal of supporting 50 projects within three years

Outlook and Strategy

• Revised full-year guidance: revenue JPY 11.65B, operating income JPY 370M, net income JPY 144M. Operating income progress stands at just 40.3% through 3Q, implying a heavily 4Q-weighted trajectory
• FY2027 plan revised to revenue JPY 12.5B and operating income JPY 600M, targeting 11,000 contracts, 67.6 sales headcount (excluding FY26 new graduates), and 13.6 contracts per person per month
• In FY2028, the 23 FY26 new graduates reaching full productivity is expected to expand sales capacity to 90.0 headcount and drive 14,800 contracts. Even at FY2027-level productivity (14.3 contracts/month), the model suggests potential for approximately 15,850 contracts
• M&A strategy is being recalibrated: minimal investment in business development-type deals, with greater focus on bolt-on acquisitions of established businesses
• Mid-career hiring will continue at 10+ per year, with enhanced onboarding programs to curb early-stage attrition

Positive Factors

• Cumulative registered professional talent exceeds 98,000; partnership network continues to expand across 130 financial institutions and 107 municipalities nationwide
• Deep enterprise client base with 230+ large-cap relationships, including 7 of the top 10 and 20 of the top 30 companies by market capitalization
• Gross profit per contract remains stable at JPY 245K overall and JPY 248K for large enterprises, maintaining pricing competitiveness
• Secured multiple large-scale government contracts from MHLW and METI; pioneering new domains such as the airport-based regional revitalization model with Toyama Airport
• Gross profit margin improved to 26.0% for the 3Q cumulative period (vs. 25.2% in the prior-year period, +0.8pt)
• If the 23 FY26 new graduates reach full productivity in FY2028, sales capacity would increase approximately 45% from current levels, lending high probability to accelerated growth

Concerns and Risks

• Contracts per salesperson per month declining to 13.1, raising the risk that headcount additions alone will not translate directly into earnings growth
• Full-year operating income progress at just 40.3%, requiring JPY 129M in operating income in 4Q; 3Q standalone posted an operating loss of JPY ▲11M
• JPY 113M goodwill impairment on Greenroom booked roughly 18 months post-acquisition, representing a full write-off and raising concerns about M&A due diligence capabilities
• Large enterprise client count stood at 77 as of 3Q, down 2 QoQ and up only 1 YoY, indicating a slowdown in new client acquisition
• CEO Okamoto's ownership ratio declined from 52.36% to 51.22% (per amendment filing; reporting trigger date December 2025)
• Specific services targeted for exit or downsizing remain undisclosed, making it difficult to quantify the expected earnings improvement at this stage

Performance Highlights

Consolidated revenue for the first three quarters totaled JPY 8.649B (+3.3% YoY) with operating income of JPY 241M (+5.8% YoY), maintaining top- and bottom-line growth. However, after booking a JPY 113M goodwill impairment loss on Greenroom as an extraordinary loss, net income attributable to owners of parent company came in at just JPY 48M (+21.1% YoY). Full-year guidance was revised downward by JPY 1.35B in revenue, JPY 230M in operating income, and JPY 216M in net income.

Segment Performance

• Monthly Average Contracts (Professional Agent Services): 826 (prior-year period: 798, +3.5%)
• Gross Profit Per Contract (Overall): JPY 245K (prior-year period: JPY 236K, +3.8%)
• Direct Sales Headcount (Monthly Average): 62.9 (prior-year period: 56.2, +11.9%)
• Large Enterprise Clients (Revenue ≥ JPY 300B): 77 (prior-year period: 76, +1)
• Contracts Per Salesperson Per Month: 13.1 (prior-year period: 14.2, ▲1.1)
• Registered Professional Talent: 98,000+ (as of end of June 2026)

Q&A List

• Q: At the time of the Greenroom acquisition, how did you assess the risk of declining interest in ESG investing?
  A: At the time of the acquisition, the Trump administration's policies were not known with certainty, but the possibility was acknowledged. However, we honestly did not foresee the magnitude of the impact. The evolution of AI has also exceeded expectations—some areas benefited while others contracted. Given the uncertain environment, we will respond flexibly to known developments and proactively anticipate what we can reasonably foresee.
• Q: In light of the impairment, is the CEO considering a reduction in executive compensation?
  A: Should such a discussion be raised by outside directors at a board meeting, we will take it seriously and respond accordingly.
• Q: Regarding the downsizing and exit of services with poor profitability or insufficient synergies, can you identify the target businesses and expected completion timeline?
  A: The target businesses fall within either the Regional Revitalization segment or the Solutions segment; however, since we need to communicate with clients and alliance partners first, we would prefer not to specify at this time. We ask that you follow our future disclosures. Our firm policy is to proceed with downsizing and exiting businesses that lack profitability and have failed to deliver expected synergies, thereby improving our margin profile.
• Q: What is the productivity gap between top-performing and bottom-performing salespeople?
  A: Generally, it takes about two years from joining before a person reaches full productivity, but we are unable to provide specific figures on the gap at this time.
• Q: How is the order pipeline for annual projects looking?
  A: Given our September fiscal year-end, orders for projects running from April through the following March have been accumulating significantly. The order volume exceeds last year's level, and we expect this to be reflected in results for the first half of next fiscal year.
• Q: Are the revised figures conservative?
  A: We are unable to comment on that, so we will refrain from answering.
• Q: Isn't the "headcount times productivity" model essentially a brute-force approach? Are you not pursuing AI-driven matching efficiencies?
  A: We are running trials on AI-driven matching and efficiency improvements. Matching accuracy depends on the volume of primary data collected, and meaningful productivity gains require substantial data accumulation. We do not yet know how much accumulation is needed before it reaches a practically usable level, but this is an initiative already underway as AI capabilities evolve.
• Q: As generative AI advances and potentially displaces consulting work—reducing required headcount and billable hours—how will the business model evolve?
  A: At foreign consulting firms, particularly in the US market, junior-level work is already being replaced by AI, and we see similar trends emerging in Japan. That said, our registered professionals have an average age of over 40, and the vast majority perform experience-driven work that AI cannot replicate. As our clients adopt AI, demand for tasks that only humans can perform is actually increasing, and we believe capturing that demand will sustain our growth trajectory.
• Q: Can you comment on 4Q earnings expectations?
  A: We are unable to comment at this time and ask that you wait for the 4Q earnings release.
• Q: What caused the divergence between guidance and actuals, and how will you improve forecasting accuracy, including from a management control perspective?
  A: Improving forecasting accuracy in the Professional Agent business is an urgent priority. We need to track both new contract wins and project completions, but the hardest variable to predict is the pace of internal sales skill development. While quantitative forward projections remain challenging, we are working to visualize skill levels internally, which should help improve the accuracy of our business planning.
• Q: How do you plan to secure and develop sales talent going forward? What is the difference in ramp-up periods between mid-career and new graduate hires?
  A: We have sufficient sample data to estimate ramp-up times for mid-career hires and have been managing within that range. New graduates, on the other hand, were first hired in 2023, so we were navigating entirely uncharted territory regarding their ramp-up period. Now that three years have passed, we are gaining visibility into the conversion rate, and going forward we will build structured development programs to accelerate readiness. Even if acceleration proves difficult, we have established the target attainment level, and we expect FY2028 results to validate this.
• Q: What are the criteria for the service downsizing and exits mentioned for the first time today?
  A: There are two criteria: first, whether the business is operating at an operating loss before common cost allocation; and second, whether there is synergy with the Professional Agent business. If a business that was never expected to generate synergies is running at a loss, we see no rationale for continuing it, and we will rigorously pursue portfolio rationalization.
• Q: Given the impairment at Greenroom, how are you thinking about M&A going forward?
  A: Our past M&A activity was limited to deals requiring business development. Going forward, we will take a more disciplined approach—allocating minimal investment to business development-type M&A while directing capital toward acquisitions of businesses that have already achieved a certain scale. Changes in the venture market driven by the Growth Market's JPY 10B threshold policy may create opportunities, but we recognize the need for even more rigorous due diligence than before.

Q&A List

• Q: How are you addressing the Growth Market's JPY 10B market cap maintenance threshold?
  A: Our priority is generating profits, and the current business portfolio review is part of that effort. We are pivoting toward building a structure capable of delivering operating income, and we will continue driving improvements to establish a truly profit-generating corporate constitution.
• Q: How do you view the relationship between external activities—such as chairing the Venture Mita-kai—and business performance, and how do you think about time allocation as a CEO?
  A: It is difficult to quantify the relationship between external networking and business performance. A meaningful portion of revenue originates from personal networks and relationships built through extracurricular activities, though many of these connections go back 10 to 15 years. Whether external activities over the past two years have produced immediate results is debatable—perhaps the impact has been limited—but there is a strong possibility they will contribute to revenue a decade from now. Focusing solely on short-term results would amount to slash-and-burn management. In keeping with our core value of sustainable relationships, we intend to continue allocating time to activities that may not yield immediate returns but are important over the medium to long term.