Laboro.AI Inc. Q3 FY2025 earnings call

• Business & Portfolio Expansion • Completed the acquisition of CAGLA as a consolidated subsidiary this quarter, adding the System Development segment to reporting. CAGLA brings graph database expertise and a manufacturing customer base that is highly complementary to Laboro.AI's custom AI business. • Established X-AI.Labo, a joint venture with GLOVING, to handle corporate DX and AI strategy development prior to AI solution building; X-AI.Labo is accounted for as an equity-method affiliate. • Maintains a strategic goal of continuing to expand the business portfolio and pursue additional M&A and partnership opportunities.

• Customer Base Development • Industry customer split remains balanced, with half from R&D-focused high-value manufacturing and half from social infrastructure/consumer-facing industries, consistent with prior quarters. • Added 4 new customers in the 3rd quarter (including Toyota Motor and Jichi Medical University), bringing cumulative new customers for the first nine months to 10, which meets plan. Existing/new customer revenue balance stays aligned with target ranges. • Generated AI and optimization projects together account for nearly 90% of total projects (over 40% each), with knowledge consolidated across projects to improve sales efficiency amid constrained sales resources.

• Organizational & Hiring Progress • Engineer hiring and growth remains on plan; past issues with engineer onboarding, training, and engagement have improved significantly after targeted interventions. • Solution designer hiring (a core driver of revenue growth) remained behind plan through the 3rd quarter, resulting in a net decrease of 1 solution designer at quarter-end. However, multiple accepted offers have been secured for Q4 and next fiscal Q1, and hiring pace has returned to near plan. • Received Great Place to Work Institute Japan's "Great Place to Work" certification to support branding and hiring efforts.

• New Product Development • Announced Mirai Research, a new product-type generative AI agent service, with a full launch targeted for fall 2025. This is an experiment in a new non-custom go-to-market model aligned with the company's value-up AI mission.

1. Custom AI Solutions Business: Cumulative revenue through the 3rd quarter is 1.37 billion yen, gross profit is 940 million yen, operating profit is 183 million yen. This segment accounts for 99.56% of total cumulative consolidated revenue. Cumulative year-over-year growth is 27% for revenue, 30% for gross profit, and 91% for operating profit. The standalone 3rd quarter result was soft due to delayed hiring of solution designers. 2. System Development Business (new segment from CAGLA subsidiary acquisition): 3rd quarter revenue is 6 million yen, gross profit is 2 million yen, operating loss is 11 million yen. This segment accounts for 0.44% of total cumulative consolidated revenue. The weak result came from few projects reaching acceptance inspection in the quarter. 3. Total Consolidated: Cumulative revenue through 3rd quarter is 1.376 billion yen, gross profit is 943 million yen. After including 39 million yen in one-time M&A-related costs, operating profit reached 132 million yen.

• Management reaffirms it is on track to meet the full-year 2025 September fiscal year consolidated guidance, with confirmed outstanding orders already covering 98% of the full-year revenue target as of the 3rd quarter end. Additional revenue from pending existing customer repeat projects and in-progress new client opportunities is expected.
• Full-year guidance is set at 1.934 billion yen in consolidated revenue, 1.332 billion yen in gross profit, and 211 million yen in operating profit, representing a downward revision from the original standalone opening guidance, driven by the soft Q3 performance and one-time M&A costs.
• The Custom AI Solutions business standalone is expected to deliver operating profit more than 10% above the original opening guidance, even with revenue slightly below the original target.
• CAGLA is expected to deliver full-year revenue contribution near its historical three-year average, despite the soft Q3 result.

• Delayed expansion of the solution designer sales team has constrained sales capacity, leading to missed project acquisition opportunities despite existing customer demand, and pressured margins as hiring and personnel costs outpaced revenue growth in the quarter.
• The newly acquired CAGLA subsidiary had limited revenue contribution in the first quarter of ownership, with revenue recognition dependent on project acceptance inspection timing that negatively impacted Q3 results.
• One-time M&A-related costs associated with the CAGLA acquisition reduced consolidated Q3 and full-year operating profit.

Q: Can you confirm if solution designer hiring, the long-standing stated issue, is on track to improve? / A: The delayed solution designer hiring was the main cause of the soft Q3 performance. While hitting the original headcount target by the start of next fiscal year is unlikely, the pace of hiring has recovered to near plan, with multiple accepted offers already secured for Q4 and next fiscal Q1. Management will continue executing current hiring initiatives to maintain and accelerate this recovered pace going forward.

Q: Is CAGLA's system development business on track despite the weak Q3 result? / A: While Q3 revenue contribution was limited due to low project acceptance volume, cross-team collaboration between Laboro.AI and CAGLA is already progressing well. Multiple joint projects and co-development sales initiatives are already underway, and integration is on track. Management continues to work toward the planned full-year revenue contribution target.

Q: What is the strategic positioning of the new Mirai Research service? / A: Laboro.AI has historically focused on custom project-based AI solutions centered on its "value-up AI" strategy, which focuses on driving revenue growth and business expansion rather than just cost cutting for clients. Mirai Research leverages generative AI to explore a new product-based model of delivering value-up AI, alongside the core custom business. The service may also create synergies for core custom AI project acquisition, and serves as an exploratory step to expand the company's approach to achieving its corporate mission.

Q: What types of generative AI and AI agent projects is Laboro.AI currently working on? / A: Generative AI projects span both R&D-focused manufacturing and consumer/social infrastructure industries, with particularly strong demand in consumer-facing sectors like consumer goods, retail, and infrastructure. Demand for AI agent projects that support full corporate or business unit transformation has grown sharply this year, and these projects can scale to very large size. Management is exploring the wide range of opportunities in this fast-evolving new field while working to deliver concrete client results.