for Startups,Inc. Q3 FY2025 earnings call

• Overall 3Q Cumulative Performance: The company reported year-over-year revenue growth of 9.5% and order intake growth of 7.5%, but a 21.6% decline in operating profit, falling short of all internal targets. The core issue was a sharp drop in order intake in November 2024, after October order volumes had appeared stable, though order volumes recovered somewhat in December. 25% more candidate interviews have been conducted so far in the 4th quarter compared to prior cumulative KPI benchmarks. • Root Cause of Performance Shortfall: Management estimates 90% of the underperformance stems from internal operational issues, with the remaining 10% attributed to external factors. Prior to this quarter, the company focused exclusively on qualitative growth, prioritizing high-fee, senior-level placements and using a 2-person support team per candidate to deliver higher quality service. This strategy worked well in the prior fiscal year, but carrying this same approach over into the first half of the current fiscal year led to an overemphasis on quality that suppressed overall placement volume. The external factor was a slower-than-expected recovery in the startup funding market, which only began picking up in the second half of the current fiscal year. • Strategic Pivot: Management has shifted strategy to prioritize improving productivity by focusing on increasing placements per employee, while maintaining existing quality standards. Three key changes are being implemented: (1) adjusting hiring pace to account for trainee onboarding timelines, (2) revising training methods to increase focus on quantitative volume targets while retaining quality standards, and (3) shifting customer acquisition strategy to add in-house direct marketing and CRM to complement existing database-driven scouting outreach. • Share Repurchase Update: The company expanded its existing share repurchase program from an original 300 million yen cap and 250,000 shares to a new 400 million yen cap and 350,000 shares. • Headcount Planning: The company expects to end the fiscal year at ~230 total employees, holding steady at this level while improving productivity. Large-scale hiring will be reconsidered only after productivity targets are met.

1. Talent Agency: This is the company's core segment, which has maintained a high average placement fee per candidate, but has fallen short of targets for total annual placement volume. For the 3rd quarter alone, talent agency revenue grew 21.4% year-over-year when measured in isolation. No full absolute revenue or contribution percentage is provided in the available transcript. 2. Consulting Services: This segment has seen a strong recovery in order intake in the 4th quarter of the current fiscal year, with order volumes exceeding budgeted targets. Historical data confirms consulting demand correlates positively with broader startup hiring activity, making this recovery a positive leading indicator for future core business performance. No absolute revenue figures or contribution percentage are provided.

• Full-year fiscal 2025 guidance has been downwardly revised to 3.7 billion yen in total revenue and 370 million yen in operating profit. • Management expects the ongoing productivity improvement initiatives will drive revenue and profit growth starting in the next fiscal year, and plans to share a detailed new long-term growth plan alongside full-year fiscal 2025 results in May 2025. • Consulting services order volume is currently above budget, and management expects this elevated level will be maintained, with gradual growth as the team scales to match demand. • New business development is currently in active testing with external partners, and the company aims to launch one or more new ventures in the 4th quarter of the current fiscal year, with further updates to follow after launch preparation is complete.

• The core talent agency business has meaningful monthly order intake volatility, which contributed to the unexpected large November 2024 drop in orders that forced the full-year guidance downgrade. Management has acknowledged that its prior internal monitoring framework failed to identify growing volume issues early enough, and will strengthen operational monitoring to catch potential issues sooner. • The startup talent market is becoming more competitive for entry- and mid-level roles, with new AI-powered matching services emerging as potential competitors. The company’s core competitive advantage is in senior leadership placements for pre-IPO and unlisted startups, which remain less vulnerable to automated competition due to the need for access to private confidential information.

Q: What is the root cause of the recent productivity declines? Is it related to the market, competition, talent quality, or internal operations? / A: Management confirms 90% of the issue is internal: the prior overemphasis on quality and 2-person per candidate support model suppressed overall placement volume that was not recognized early enough. The company will now balance quality targets with volume growth, and strengthen internal monitoring to catch issues faster than the 3-month lag that occurred this cycle. Management plans to share a revised positive growth plan in May 2025.

Q: Why did the company choose to expand share repurchases rather than increase dividends to return capital to shareholders? / A: Management acknowledges dividends have a positive impact on share prices, but believes it is too early to commit to a stable, high dividend payout right now, as the company still needs to retain capital for growth investments in existing and new businesses, potential M&A, and other strategic corporate actions. Expanding share repurchases improves capital efficiency given current excess cash and share price levels, while retaining flexibility for future investments. The company will continue to evaluate future shareholder return policies.

Q: How is the company responding to changes in the competitive landscape and the emergence of generative AI in talent matching? / A: The company’s core competitive strength is placing mid-30s candidates with 1 million to 1.1 million yen annual salaries into senior leadership roles at startups, where the company is the clear market leader. Competition is more intense for entry/mid-level roles, so the company will expand into new verticals including deeptech/space startups and post-IPO listed startups to grow. Management is currently budgeting for generative AI integration, and notes that the company’s core advantage accessing private information from unlisted/pre-IPO startups can be leveraged to build superior AI-powered services for its niche market.