AI CROSS Inc. Q1 FY2025 earnings call

Overall Financial Performance

• The company posted a record high operating profit of 139 million yen and recurring profit of 141 million yen, marking consecutive all-time high quarterly profit since listing, with net quarterly profit of 81 million yen (12% growth year-over-year despite a 7 million yen impairment loss on startup investment holdings).
• Gross profit and segment profit grew steadily as the company shifted its focus from low-margin foreign client volumes to high-margin domestic clients. Selling, general and administrative (SG&A) costs grew slightly driven by planned hiring of sales, data science, and engineering talent, with R&D expense dipping slightly this quarter as completed projects move to cost of goods sold classification.

Messaging Service Strategy

• Core strategy focuses on expanding high average revenue per customer (ARPU) domestic clients in the financial, human resources, insurance, and real estate industries, with a focus on direct sales to large, underpenetrated enterprise clients.
• The company launched 絶対リーチ!RCS, its rich messaging platform that supports image and video delivery, enabling fixed monthly recurring revenue and higher per-message pricing compared to legacy SMS. It also offers packaged solutions like リピカム, a customer re-engagement solution that bundles SMS delivery with AI targeting and BPO services.
• Cross-selling AI-powered features and bundled solutions to existing SMS clients is a key growth lever to boost overall segment ARPU.

AI Service (Deep Predictor) Strategy

• Deep Predictor is the company's standalone no-code demand forecasting AI platform that helps businesses optimize inventory and reduce operational waste, with a tiered pricing structure to serve all customer segments:
  • Simple Plan: Low-cost fixed-price offering for small businesses with no in-house data science expertise
  • Custom Plan: Custom model development and consulting for larger enterprise clients, with 6-month proof-of-concept testing to validate business impact
  • New Assistant Plan launching in H2 FY2025: A mid-tier offering for customers that need hands-on AI support but not full custom consulting, with an intuitive UI and AI chatbot to automate forecast generation
• The company has already secured notable customer success: a funeral services customer cut sales forecast time from 1 hour to 10 minutes (6x faster) and reduced opportunity loss from delayed site opening decisions, while a men's hair removal salon saw a 10% increase in in-store visits from RCS marketing.

Human Resources and Internal Operations

• The company prioritizes internal AI literacy: all employees get access to paid ChatGPT, supported by internal AI evangelists for training, and offers a generous skill development subsidy program for employee reskilling.
• Most new hires are mid-career, with high employee referral rates that keep recruitment costs lower than industry averages, and internal open project postings to upskill existing employees into AI roles.

1. Messaging Service: This is the company's core revenue segment, contributing 86.9% of total revenue from domestic customers in FY2025 1Q. It generates revenue from SMS and RCS messaging, priced based on volume and per-message rates. Total company revenue for the quarter was 930 million yen, with domestic messaging revenue accounting for approximately 808.17 million yen of this total. Partner-sourced transaction counts grew quarter-over-quarter driven by targeted industry partnerships, while domestic SMS delivery volume continues steady growth, with high average revenue per customer from focused growth in the financial and human resources industries. 2. AI Service (Deep Predictor): This standalone demand forecasting AI segment offers tiered pricing plans: a low-cost Simple Plan at 50 thousand yen for small customers without in-house data scientists, and a higher-priced Custom Plan with custom model building for larger customers with in-house AI expertise. Adoption is growing across manufacturing, retail, and funeral services industries, with new plan development underway.

• The company maintains its full-year FY2025 revenue guidance of 4.3 billion yen. FY2025 1Q revenue reached 21.65% of the full-year target, which is in line with historical seasonal trends.
• Profit KPIs reached 35-40% of full-year guidance in 1Q, which appears above target, but the full-year guidance already incorporates expected temporary SG&A increases from recurring shareholder benefit costs in Q2 and Q4, so performance is currently tracking in line with plan. Management has built sufficient buffer into guidance to account for potential increases in shareholder benefit costs from growing shareholder counts.
• The company will continue to prioritize investment in new product development, including new features for 絶対リーチ!RCS, AI integration with messaging services, and the launch of the new Deep Predictor Assistant Plan in the second half of FY2025.

• The 1Q overall delivery volume dipped slightly due to a continued decline in low-margin foreign client volume, a legacy shift that management has planned for.
• SMS messaging faces potential regulatory constraints around phone number usage and personal information protection; management notes the company already complies with all requirements including sender permission verification and carrier approval, so this does not pose a material risk to market growth.
• Spam and fraudulent SMS messaging remains an industry-wide challenge; RCS' verified sender feature is expected to mitigate this risk and increase demand for the platform from regulated industries like financial services.
• The company recorded a 7 million yen securities impairment loss from a startup investment in the quarter, but this did not offset overall profit growth.

Q: Can you explain what RCS is and what its key benefits are for business customers? / A: RCS is an upgraded messaging standard that works with existing phone numbers, allowing businesses to send images, videos, and carousel content directly to consumers' default messaging apps, similar to LINE but without requiring users to share an ID. A core security benefit is that RCS requires formal business registration with carriers, so sender identities cannot be faked, which eliminates fraudulent spoofing that plagues legacy SMS. This feature makes RCS particularly attractive to financial institutions and other security-focused industries. A recent customer implementation saw a 10% increase in in-store visit conversion rates compared to legacy SMS and LINE.