Caster Co.Ltd. Q2 FY2025 earnings call

Core Quarterly Performance Highlights

• Total company revenue reached 2.29 billion yen, with an operating loss of 273 million yen. Active client companies grew to 1,295, marking a new all-time high for two consecutive quarters, while overall ARPU came in at 286 thousand yen.
• Growth in active client companies was driven primarily by rising demand for the company's low-lot services. Revenue hit a new all-time high, partly due to the first-time consolidation of AI-related revenue from subsidiary LUVO.
• The operating loss was caused by concentrated talent investment in the accounting vertical, slower-than-expected upsell revenue growth, lower-than-expected average unit price growth in accounting, and the termination of a large client contract. Cost optimization efforts are already underway and starting to show initial results.

New Product & Strategic Initiatives

• Launched CASTER NEO, an AI agent production agency service that helps clients build custom AI workflows and tune AI models to embed AI into their business operations to solve business problems.
• Declared a company-wide shift to AI First Management, which implements AI-driven automation for all business operations from executive management to frontline work. Internal examples include AI-generated presentation slides, AI chatbot handling for all internal HR and legal inquiries, and AI-generated digital clones and voice for earnings presentations. The company will accumulate internal AI implementation know-how to package into client AI solutions.
• Deepened strategic partnership with Money Forward: launched proof-of-concept for a joint accounting-specific product integrated with Money Forward Cloud, which has already received strong market inquiry. The partnership holds monthly steering committee meetings to coordinate collaboration. The company has successfully built a segmented work structure to recruit accounting talent, and hiring is progressing ahead of plan.
• Established CASTER TECH VIETNAM CO., LTD. as a system development hub in Vietnam, to shift internal system and AI agent development to Vietnam, leveraging existing development infrastructure from subsidiary Grams.
• Subsidiary Grams launched SASAGE.APP, a full-fledged SaaS product with custom fine-tuned AI for EC operation efficiency improvement, focused on the niche "sasage" (product listing preparation) workstream that generic large language models do not cover well.
• Expanded new client acquisition channels through participation in both online and offline industry events.

Mid-Term Strategic Direction

• The company's long-term vision is to become the world's unique workforce provider that integrates human and AI capabilities, opening a new frontier of work. Leveraging its early experience building a fully remote work organization, the company is going all-in on AI, shifting the entire business to an AI-first model rather than a partial AI shift, with the goal of drastically improving productivity while reducing labor cost share. The company will release a full mid-term management plan within 1 year.

1. BPaaS Business: Revenue grew driven by strong rising demand for low-lot services, which pushed the total number of active client companies to a new record high for two consecutive quarters. However, low-lot services have lower ARPU (average revenue per user), which has pulled down overall segment average client unit price. The segment is facing increased cost pressure from aggressive talent investment focused on the accounting vertical to support the deepened partnership with Money Forward. No explicit absolute revenue value or revenue contribution percentage was provided in the available transcript. 2. Other Business: This segment includes staffing services, recruitment services, and the businesses of consolidated subsidiaries Grams and LUVO. All segments posted growth, as the consolidation of Grams and the start of revenue recognition for AI-related services from LUVO contributed to performance. AI agent-related revenue monetization at LUVO has begun, but is still too small to have a material impact on overall company revenue at this stage. No explicit absolute revenue value or revenue contribution percentage was provided.

• Management maintains the full-year 2025 August fiscal year target of 10 million yen in operating profit, with no changes to prior full-year earnings guidance.
• Full-year revenue progress hit 45.5% as of the second quarter, which is slightly behind the planned pace. Management’s priority for the second half is to recover this delayed progress.
• The company expects ARPU to stabilize and improve in the second half, driven by adjusted sales resource allocation: the company will continue to sell the popular low-lot service, but will reallocate more resources to higher-margin, specialized vertical services to lift overall average unit price.
• Management confirmed that the core push toward full-year operating profit breakeven remains on track, and the overall turnaround strategy is unchanged despite the second quarter operating loss.

• Slower-than-expected upsell revenue growth in the accounting vertical, following concentrated talent investment, has pressured near-term profitability and delayed the impact of investment on earnings.
• High allocation of sales resources to the fast-growing low-lot service has pulled down overall company ARPU, creating near-term top-line pressure.
• Operating cash flow is significantly lower year-over-year due to increased investment-related expenses, although this was within prior management expectations.
• The company's equity ratio has declined more than 20% year-over-year, creating market concerns over financial stability.
• The termination of a large client contract caused a sequential revenue decline quarter-over-quarter and contributed to the expanded operating loss in the second quarter.

Q: Equity ratio has dropped over 20% year-over-year, and the CFO role changed recently. Is there any instability in the financial or organizational structure? What is the current financial status? / A: The CFO change was to strengthen management, hiring, and governance capabilities, not driven by financial problems. New CFO Morioka has been a long-tenured director at the company since 2016, so there is no knowledge gap or organizational instability. Management acknowledges the need to strengthen the equity ratio, but will rebalance capital at an appropriate timing as the company is already on track to reach full-year profitability. The immediate priority is to return revenue and profit to a growth trajectory through adjusted resource allocation and cost optimization, and the new management team is focused on executing this turnaround.

Q: What is the background for expecting ARPU improvement in the second half? / A: ARPU has declined recently because most of the recent client growth has come from the low-lot service segment, which inherently has lower unit pricing. To reverse this trend, management is reallocating sales resources: while continuing to grow the popular low-lot service, more resources will be shifted to acquiring clients for higher-priced specialized vertical services, and accelerating upsell to increase existing low-lot clients' spending over time. This allocation shift will stabilize and lift overall ARPU starting in the second half.

Q: What is the company's vision for becoming a next-generation workforce provider? / A: Against the backdrop of Japan's rapidly declining working-age population and the rise of AI, Caster is building a new model that integrates human and AI work. In the digital workspace, AI can deliver the same output as humans, and the company is already operating with AI handling most internal work that is undetectable to employees and clients. By 2030, Caster aims to scale this model to become the global leader in human-AI integrated workforce provision, creating a new market for this offering.