AI CROSS Inc. Q3 FY2025 earnings call

• Company Mission and Core Business

  • AI CROSS's mission is "Smart Work, Smart Life: Continue creating good time in life", focused on solving Japan's labor population decline through productivity improving services
  • Operates two core business lines: 90% revenue from B2C messaging service "Absolute Reach" (SMS/RCS based business communication automation), and 10% revenue from AI platform "Deep Predictor" that allows non-specialists to build AI prediction models
  • Has approximately 8,000 total customers, primarily large B2C firms and public sector organizations

• Messaging Service Strategic Updates

  • The A2P-SMS corporate market is projected to grow 18.9% annually from 2024 to 2029, remaining a high-growth market
  • After 2 years of profit improvement focused on reducing reliance on low-margin large-volume foreign client contracts, the segment now shifts to a "from platform to solution" strategy combining SMS and AI
  • Launched "Absolute Reach! RCS" (RCS messaging service) in September 2024, an upgraded SMS standard that supports rich media, requires no friend registration, and has enhanced security; one early case saw a beauty salon increase in-store visit rate by 10% and conversion up to 2x
  • Added new revenue models in addition to traditional pay-per-message billing: monthly subscription and success-based pricing tied to customer conversion outcomes
  • Acquired 100% of Roup Co., Ltd. (20 total employees, nearly all consultants) via M&A in October 2025 to strengthen marketing consulting and RCS go-to-market capabilities, with sales activities already underway

• AI Service (Deep Predictor) Strategic Updates

  • Deep Predictor is an AI prediction platform that enables companies without data science specialists to build custom models, with core competitive advantage in automated pre-processing of unstructured enterprise data
  • Primary use cases include manufacturing demand forecasting, retail store sales forecasting, and targeted customer selection for messaging campaigns; most current customers are in manufacturing
  • Current go-to-market relies on custom AI projects with upfront setup fees plus monthly subscriptions, and the company has already launched a reseller-friendly self-serve "Assistant Plan" to scale to a SaaS-like monthly recurring revenue model

• 3Q FY2025 Financial Performance

  • Reported 0.983 billion yen in total revenue, 0.106 billion yen in operating profit, 0.107 billion yen in ordinary profit, and 0.052 billion yen in net quarterly profit
  • Reported year-over-year profit decline is driven by one-time M&A advisory fees for the Roup acquisition; underlying operating profit from core business grows steadily
  • Total revenue is an all-time high since listing, and is 67.56% of the full-year FY2025 guidance with one quarter remaining, tracking in line with plan

1. Messaging Service (Absolute Reach): 90% of total company revenue, with 0.983 billion yen in 3Q FY2025 total sales contributing 0.8847 billion yen (90% share). Domestic customers now account for 90% of segment revenue, after the company shifted focus from lower-margin large-volume foreign client contracts to higher-margin domestic customers. 2. AI Service (Deep Predictor): Currently in the investment phase, contributes the remaining 10% of total company revenue, with no separate full financial figures disclosed in the call.

• The company launched its first mid-term management plan "AIX2027" covering FY2025-FY2027, targeting 2.0x total revenue growth and 5.4x operating profit growth by FY27
  • Messaging service will continue growing the existing SMS platform business, while increasing average revenue per user via RCS and AI-powered solutions to lift average pricing
  • Deep Predictor, which has been in the investment phase, is expected to reach profitability in the next fiscal year (FY2026) and become a key driver of future operating profit growth
  • Full-year FY2025 guidance is maintained, with 3Q results tracking in line with original projections

• Large volume SMS usage by large foreign tech firms caused sharp industry-wide delivery price declines, forcing the company to shift to higher-margin domestic customers
  • Current corporate penetration of SMS in Japan is only around 20%, leaving room for growth but requiring continued investment in new customer acquisition
  • RCS adoption depends on major Japanese mobile carriers completing their network and default app upgrades, with the exact timing of broader carrier support still uncertain

Q: How does AI CROSS balance investment between upselling/cross-selling existing customers and acquiring new customers, and what are the specific initiatives for each? / A: In messaging, the company already has 8,000 existing customers, and will prioritize upselling AI-powered solutions and monthly subscription services to increase ARPU. At the same time, since corporate SMS penetration is still only 20% in Japan, the company will continue acquiring new customers via new industry development and partner agency embedding. Currently the company pursues both equally, with a particular focus on deepening existing domestic customer relationships given the large untapped ARPU growth opportunity.

Q: What industries are driving current SMS revenue growth in Japan, and what is the outlook for these segments? / A: The fastest growth is currently coming from the human resources industry, where firms use SMS to re-engage past candidates and coordinate interviews, since response rates are far higher than email amid widespread labor shortages. Financial services is the second fastest growing segment, with growth driven primarily by partner agency channels. The company will continue expanding into new underpenetrated industries.

Q: What is the current status of the joint project partnership with Hitachi's Lumada program? / A: The partnership has generated multiple active joint client projects, with new project wins continuing to increase. Most of AI CROSS's contributions are in AI solutions: Deep Predictor, plus generative AI consulting and custom development. The partnership has delivered solid progress and has been a valuable source of new business opportunities for the company.