AI CROSS Inc. Q4 FY2024 earnings call

• Overall FY2024 Performance

  • All three core metrics (revenue, operating profit, ordinary profit) hit record highs since listing, with revenue at 3.705 billion yen, operating profit at 335 million yen, and ordinary profit at 326 million yen.
  • 4Q FY2024 saw a year-over-year and quarter-over-quarter profit decline, driven by one-time expenses (performance-based bonuses for strong full-year results, increased recruitment costs for mid-term plan expansion, professional service fees, and planned shareholder benefit costs), all within pre-approved budget.
  • The company completed a two-year strategic shift from low-margin overseas authentication SMS to higher-margin domestic customers, achieving V-shaped revenue recovery with 80% of revenue now coming from domestic clients.

• Messaging Segment Strategic Updates

  • Three core strategic priorities are in progress: focusing on domestic customers, targeting high average revenue per customer industries (finance, human resources, real estate), and evolving SMS from a simple authentication tool to a full customer experience (CX) engagement tool.
  • The revenue model is being evolved from pure pay-per-volume (number of messages sent × unit price) to a hybrid model adding subscription and success-based pricing: subscription adds monthly fees for data analytics and optimization features, while success-based pricing (via the new "Repicam" solution) charges per achieved outcome (e.g., scheduled candidate interviews for HR clients, generated leads for real estate) rather than per message, improving profitability for AI CROSS and reducing client risk.

• AI Segment Operational Updates

  • The core AI product is Deep Predictor, a no-code demand forecasting platform customized per client, which has delivered validated results for clients including a PC manufacturer (optimized component ordering to reduce excess inventory) and retail electricity providers (predicting at-risk customers to target churn-prevention messaging via SMS, with cross-segment horizontal expansion ongoing).

• Mid-Term Plan (AIX2027, FY2025-FY2027) Structure

  • This 3-year plan builds on the completed strategic reset of the past two years, with a core goal of growing operating profit to 5.4x the FY2024 level via "Messaging × AI" differentiation, focusing on profit from DX and CX solutions.
  • Organizational changes include consolidating 3 separate back-office divisions into a single integrated department to keep headquarters shared costs flat as revenue grows, reducing the shared cost ratio over time.

1. Messaging Service: FY2024 full year company-wide revenue is 3.705 billion yen, with domestic customers accounting for 80% of total revenue. The 2027 FY target for standalone messaging service is 7.01 billion yen in revenue and 2.2 billion yen in contribution profit. In 4Q FY2024, total company revenue was 984 million yen, an all-time high since listing.
2. AI Service: Current (FY2024 4Q) standalone contribution profit is negative 83 million yen, still in deficit. The 2027 FY standalone target is 290 million yen in revenue and 100 million yen in profit. This standalone target excludes "Messaging × AI" initiatives that focus on improving messaging segment profitability.

• Aggregate medium-term targets for FY2027: total revenue of 7.3 billion yen, compound annual growth rate (CAGR) of 25.4% from FY2024; operating profit of 1.809 billion yen (5.4x FY2024 level), CAGR of 75.1%, with a target operating margin of 24.7%.
• Revenue per employee target for FY2027 is 86.9 million yen, nearly double the 2019 level, driven by AI-driven automation and shifting employee resources to higher-productivity roles.
• Messaging segment standalone FY2027 target: 7.01 billion yen revenue, 2.2 billion yen contribution profit.
• AI segment standalone FY2027 target: 290 million yen revenue, 100 million yen contribution profit, turning current losses to net profit.
• Management maintains that current strong growth in domestic messaging revenue will continue as the company concentrates resources on domestic use case development and increasing domestic ARPU.

• The SMS core market has shifted, with low-margin bulk authentication SMS no longer delivering sufficient profit, requiring the company to successfully execute its transition to solution-based pricing and CX-focused offerings to meet growth targets.
• The AI market is rapidly changing with high uncertainty around customer adoption and competitive dynamics, making it difficult to predict how quickly the AI segment can reach profitability.
• The planned shareholder benefit program has a high projected annual cost of 140 million yen for FY2025, representing 67% of projected net income, raising questions about available capital for growth investment.
• Successful growth depends on increasing the solution and success-based revenue ratio; failure to scale this transition would prevent the company from hitting its 2027 profit targets.

Q: Can domestic messaging sales maintain its current strong growth rate, and what is your strategy to sustain this growth? / A: Management confirms it will continue focusing all resources on domestic use case development and raising domestic ARPU, so the current growth trajectory is expected to continue. Growth will be driven by three channels: partner agency-led solution sales to new clients, horizontal expansion to other clients within target high-margin industries, and full-scale rollout of cross-selling AI services to existing messaging clients, which is already starting to gain traction.

Q: How do the subscription and success-based revenue models differ, and what is the early traction for the success-based Repicam solution for reactivating dormant users? / A: The success-based model charges per outcome: for example, per candidate interview scheduled for HR clients, not per message sent. AI targeting reduces unnecessary messaging, cutting costs while raising margins. The subscription model charges a monthly fee for platform access with added features like optimal send time scheduling. For Repicam, most clients pay per generated lead, not per completed purchase; SMS has very high open rates, so the solution consistently generates measurable lead responses from dormant users, and it is gaining particular traction amid cookie regulation that has reduced the effectiveness of traditional digital advertising.

Q: What are the prerequisite conditions for the mid-term plan to stay on track through 2026? / A: The core prerequisite is successfully increasing the share of solution-based revenue. Management states that growing the proportion of domestic clients and expanding solution adoption among these clients is the most critical foundational step to hit all mid-term profit and growth targets.

Q: What is the company's position on the high cost of the current shareholder benefit program, and has it delivered positive results? / A: Management notes that as a small-cap company below ¥100 billion market cap, it relies heavily on individual shareholder support, and the benefit program has successfully connected the company with long-term individual investors and improved trading liquidity, which helps attract new institutional investor interest. Costs have remained within budget, and the company will continue to reevaluate the program over time to select the optimal shareholder return approach.