Caster Co.Ltd. Q3 FY2025 earnings call

Core Operating Performance

• Active client companies reached an all-time high for the third consecutive quarter, showing strong underlying demand growth, though growth acceleration remains insufficient to meet full-year targets.
• Continued deficits persisted in the quarter due to the burden of prior-period upfront investments, but the operating deficit has narrowed amid improved cost control aligned with revenue growth.
• Customer acquisition cost (CAC) efficiency has improved, but cost savings have not yet outpaced investment in new growth areas.

New Product & Partnership Updates

• Launched full-scale CASTER BIZ sales agency service in partnership with Wiz Co., Ltd.
• Opened a remote work accounting course in partnership with Human Academy to cultivate skilled talent supporting work-life balance for caregiving and childcare providers.
• Launched a specialized new plan CASTER BIZ accounting for tax accounting firms to meet growing industry-specific demand.
• Subsidiary Grams entered a business partnership with Rakuten and Komehyo to expand operations in the growing reuse market.
• Subsidiary Grams launched a production-ready generative AI feature to generate model-worn product images from base product photos, establishing a competitive technical advantage in the segment.
• Subsidiary LUVO plans to imminently launch its first in-house developed AI agent service specialized for accounting and business management, leveraging Caster's domain expertise.

Market Context & Strategic Priorities

• The traditional BPO market is growing slowly, while the small-lot BPaaS market (targeting SMEs) is projected to grow at a 14.8% CAGR through 2032. The even newer micro-lot market (defined by Caster as under 40 thousand yen monthly) is growing at an even faster 34.3% CAGR.
• Caster is pursuing two core priorities to capture this high growth: 1. Reduce customer acquisition costs via no-negotiation sales funnel design. 94% of CAC-related costs are identifiable and can be reduced or optimized via AI automation, which will enable improved service value for lower-price clients. 2. Restructure operations via AI products. 90% of current operational costs are tied to communication and direction (only 10% is core task work), and Caster projects it can cut 45% of these coordination costs via AI automation, driving large productivity gains.

1. BPaaS Business (Core Segment): Specialized domain services remained steady, but growth slowed due to delayed partnership impacts. Overall revenue was roughly flat year-over-year, as growth from the expansion of the low-lot My Assistant offering (driven by increasing active client companies) was offset by the cancellation of a large hiring-related client account. ARPU (average revenue per user) fell to 283 thousand yen in the cumulative first three quarters due to over-concentration of new micro-lot (under 40 thousand yen monthly) clients, but it is now recovering. Profitability has begun to improve after prior adjustments. 2. Other Business: Revenue is supported by the consolidation of subsidiary results and EC-Consulting operational outsourcing services. Existing dispatching/placement services remain stable and roughly flat. The newly established CASTER TECH VIETNAM (April 2025) will not be included in consolidated P&L until the fourth quarter, and is expected to positively impact profitability over time once operational.

• Caster downwardly revised its full-year 2025 August fiscal year guidance, as progress on partnership synergies and selling, general and administrative expense reduction fell short of prior expectations, with slower-than-expected growth in specialized business segments leading to the miss.
• Management expects ARPU to recover to the 300 thousand yen level by the end of the full fiscal year (fourth quarter cumulative), after recent marketing allocation adjustments corrected the prior over-emphasis on low-margin micro-lot clients.
• Management will continue cost optimization and pursue selective growth investment to sustainably grow market share in the fast-growing small and micro-lot BPaaS segments.

• Delays in realizing partnership synergies and cost cutting are the primary risk to near-term profitability, and have already necessitated a full-year guidance downward revision.
• High growth in the micro-lot market creates pressure to maintain low delivery costs while preserving service value, which requires ongoing operational innovation to balance growth and margins.
• Rapid market change requires Caster to redefine its core mission and positioning, creating uncertainty around long-term strategic positioning.

Q: What factors have held back upselling and ARPU growth, and what are management's plans to improve average prices going forward? / A: The decline in ARPU was not caused by poor upselling performance; it was a deliberate result of Caster's intentional push into the fast-growing micro-lot client segment. New client acquisition over-weighted micro-lot accounts more than expected, which pulled down the overall average ARPU. Management has adjusted marketing spend allocation to correct this over-emphasis, and upselling is already progressing well, pulling ARPU back toward historical levels. Going forward, Caster will maintain separate, segmented service and go-to-market strategies for micro-lot and higher-value clients, rather than chasing high ARPU at the expense of exposure to the high-growth low-price market.

Q: How has Caster's mission evolved amid its shift toward AI tools? Does this create a disconnect from the company's original mission? / A: Caster's focus is on improving productivity not cutting headcount, and there is no intention to simply eliminate employee roles. The company originated with a mission to make remote work ubiquitous, which has already been largely achieved and accepted as a norm in the industry, but shifting market conditions mean Caster needs to redefine its mission and purpose to fit the current market landscape. Caster has evolved far beyond its early roots as an online secretarial service, and will continue expanding to offer a broad range of AI-enabled business services to meet evolving client needs, which aligns with delivering value to all stakeholders.

Q: Which industries and client segments show the strongest current demand for BPaaS services, and where does Caster plan to focus going forward? / A: The core volume segment for Caster's BPaaS business is companies with 100-300 employees, with growing traction among larger 500-1000 employee firms. Startups and IT companies account for 30-40% of clients, with the rest spread across professional services, consulting, and retail. Demand is growing particularly fast for accounting outsourcing services, and Caster is prioritizing expansion among smaller 1-100 employee firms, where demand is exploding. The key challenge is balancing this growth with controlling delivery costs to maintain margins without reducing service value, and Caster is continuing to innovate its operating model to achieve this balance.

Q: Will Caster's AI focus be limited to internal efficiency, or will Caster replace client work with AI? When will this reach practical large-scale deployment? / A: If AI can be used for internal efficiency, it can equally be used to improve client operational efficiency, since both are human work processes. Caster already offers AI-enabled client services like CASTER NEO that handle client work via AI, built by decomposing and reengineering workflows to fit AI capabilities. Not all work can be handled by AI—long complex workflows can break AI processing, so human oversight and maintenance is still required to keep processes running. Most companies still lack a clear understanding of what AI can practically achieve, so Caster's priority is helping clients catch up to the latest capabilities and integrate AI effectively into their operations.