Caster Co.Ltd. Q1 FY2026 earnings call

• Overall Financial Results

  • The company achieved operating profit of 19 million yen, returning to profitability for the first time in six quarters, with total revenue of 1.12 billion yen, a slight decrease year-over-year. Revenue decreased both year-over-year and quarter-over-quarter, but the company achieved profit growth.
  • The gross margin improvement and selling, general and administrative (SG&A) expense reduction from cost structure reform drove the profit turnarounds: SG&A as a percentage of revenue fell from 50.8% to 36.7%. Continued SG&A cost control is the core driver of this profitability.
  • The equity capital ratio has improved following profitability, and the company's financial position is stable.

• Sales Growth Initiatives

  • The company is expanding transactions with enterprise customers by addressing historical barriers: it now provides customized facility and security environment access, tailored contract forms to meet enterprise client requirements, and develops industry-specific adaptations for unique client segments including construction companies, school corporations, and special corporations to increase transaction values.
  • The company pursues an "AI FIRST Management" strategy and is aggressively advancing company-wide AI reskilling, with mandatory AI training for all employees to raise overall capability. The company aims to accelerate development of all service designs centered on AI utilization.
  • The company notes that there is no significant immediate sign of existing BPO work being eliminated by AI. Instead, customer demand for hybrid AI-human operations and consulting on AI integration is growing, and Caster holds a first-mover advantage as most companies are still in the early stages of AI adoption.

• New Business Launches

  • Subsidiary Grams launched the new AI service heroshot, integrated into its existing SASAGE.APP platform for secondhand clothing. The service uses custom fine-tuned AI to place photographed secondhand clothing on AI-generated models, solving accuracy issues with general AI models that fail to correctly reflect logos and fabric texture, demonstrating the subsidiary's technical capabilities.
  • Subsidiary Caster Tech Japan launched an external AI reskilling training business, offering the same AI training program Caster developed for internal use to external clients. The company expects the AI training market to grow rapidly from 2026 to 2027, and is allocating sufficient resources to take a leading position in this market.

Caster implemented a reporting segment restructure starting in the first quarter of the 2026 August Term: "My Assistant" was moved from the BPaaS segment to the new AI Tech segment, while "Reworker" and "Work-from-home Dispatching" were spun off from other businesses to form the new HR segment. Management stated that overall results were primarily driven by improved performance from the BPaaS business, which was the main contributor to the company's first quarter profitability. Key KPIs for the BPaaS segment show: (1) Operating client count recorded a net increase, (2) Average Revenue Per User (ARPU), which had been on a downward trend, has now stabilized; the decline was driven by strong performance of low-priced services, and ARPU is now starting a recovery trend as the company shifts focus to promoting service lines above a certain price point while moderating growth of low-priced offerings. No separate absolute financial values or revenue contribution percentages were provided for the new AI Tech and HR segments in the available transcript.

• The full-year profitability target for the 2026 August Term remains unchanged; management maintains the expectation of achieving full-year profitability after completing planned investments.
  • First quarter revenue reached 21.6% of the full-year guidance target. The final full-year result may fluctuate depending on the pace of investment in the new AI training business and enterprise-focused service expansion.
  • Management is targeting an upside earnings surprise, and is working to achieve a certain level of upward profit revision in the second and third quarters of the fiscal year.
  • No changes to the existing guidance have been made at this stage; any future adjustments will be made after refining forecasts in the coming quarters.

• The full-year result faces uncertainty related to the pace and scale of new investments in the AI training business and enterprise service expansion, which could cause deviations from the current plan.
  • While there is no immediate large-scale impact from AI displacing existing work, the long-term impact of AI adoption on the company's traditional BPO service demand remains uncertain, and the company must continuously adapt to shifting customer needs.
  • The company's current profitability relies on sustained SG&A cost control; any unplanned large new investment could pressure profitability.
  • The AI training market is still in an early stage of development, and the expected large market growth may not materialize as projected.

Q: You achieved operating profitability for the first time in six quarters. Is this profitability sustainable in coming quarters, and what factors support sustainability?

A: Almost all of our customers are on recurring, continuing contracts. New customer additions currently outpace customer cancellations, which creates a base for revenue and profit growth. We have dramatically improved SG&A and advertising cost efficiency over the past year, and we now have the appropriate level of SG&A in place to support our current performance. Unless we implement large new unplanned investments, we have a structure in place to stably generate quarterly operating profit. We are not currently planning large new additional investments. If we hit our full-year profit target comfortably, we may shift to more aggressive sales expansion initiatives, but our current core policy is to maintain profitability while controlling growth, so the profitable quarterly structure is sustainable for the foreseeable future.

Q: Operating profit improved dramatically from a year-ago loss. What is the main driver of this improvement?

A: Last year, we aggressively expanded hiring to prepare for future customer growth, which pushed down our gross margin significantly. Because we hired a large number of staff all at once rather than growing incrementally, new order volume did not catch up to the increased personnel capacity, which reduced gross profit and required additional SG&A spending to acquire new customers, leading to a larger deficit. This year, we have not done any large concentrated hiring. We are now focused on steadily meeting customer demand while generating profit, and as long as we do not repeat that large-scale pre-emptive hiring, we will not return to large deficits.

Q: You have historically had many small and medium enterprise customers. What does demand from enterprise customers look like currently?

A: While we do not disclose the percentage, a meaningful share of our customer base is already enterprise customers. Unlike the traditional BPO industry norm of very large contracts worth tens or hundreds of millions of yen per month, most enterprise decision-makers only have approval authority for smaller monthly contracts in the hundreds of thousands or tens of thousands of yen range. Many enterprise department heads and subsidiary leaders have unmet labor needs in this smaller contract size, and they choose Caster because we allow simple, streamlined ordering without excessive internal coordination. A common pattern is that an initial order from one department leads to additional orders from other departments or related companies within the same enterprise group. Our enterprise customers come from a range of industries beyond IT, including construction and professional services, and we are building client-specific systems to capture more of this demand.

Q: You have outlined an investment plan. What specific investments do you plan to make?

A: Our core policy this fiscal year is to maintain profitability, so we will not make investments that exceed our profit margin. We will only consider investments that exceed the current plan (e.g., increases of 100 million yen or more) after careful evaluation to confirm whether they will contribute to this year's profit or next year's sales growth. We will solidify our base before confirming our outlook, then decide which areas to invest in. We will prioritize investment in the enterprise segment, which still has significant room to grow, and we also have room for additional advertising investment. AI training is the area most likely to see accelerated investment starting this year.

Q: What is management's view on the current share price, and has the board discussed it?

A: The board does discuss the share price, and we believe the current share price is too low. There are not many actions we can take solely in response to a low share price, so we will continue to steadily advance profitability and prepare for long-term value creation.

Q: Many back-office tasks are expected to be replaced by generative AI. Do you expect a decline in human-operated projects?

A: While simple logic would suggest projects will decline, we have not seen meaningful declines so far. AI adoption is just starting globally, and 99.999% of people cannot effectively use AI for business processes because of the fast pace of change. Generic AI cannot handle long end-to-end workfllows out of the box, so companies need to build custom AI-integrated workflows, and there is very little public information or expertise available for this work. We see customer demand concentrating in this integration space, and we are positioning ourselves to meet that demand. We view this as a major opportunity, because Caster can build new operations from scratch in this reset market environment.

Q: Top-line growth was flat in the first quarter, and a sales director stepped down recently. How do you plan to deliver top-line growth going forward, and what is your view of management accountability for the slow growth?

A: While top-line growth was slow in the first quarter, the number of client companies is still growing, and we do not believe we have entered a sustained slow growth phase. Even with reduced advertising spending to prioritize profit, client count is growing and ARPU is gradually recovering, so we expect to deliver solid growth from Q1 to Q4. We will drive top-line growth first by implementing customized solutions for large clients that we did not previously accommodate, which will increase average transaction size. New large clients also represent a meaningful share of new customer additions, so they will contribute to revenue growth. We will also continue to serve steady demand from small and medium enterprises, which provides a solid base for growth. In addition, the AI integration space has very large unmet growth potential, and almost no other BPaaS providers have advanced combined AI-BPaaS offerings like Caster, so this space will be a major driver of future top-line growth.

Q: First quarter results are already above the full-year plan pace. Why are you keeping full-year guidance conservative, and what cost increases do you expect after the second quarter?

A: It is true that Q1 is ahead of plan, but we have not yet locked in all costs for the rest of the year. We are still in the early stage of the fiscal year, so we built a reasonable level of uncertainty into our current guidance. We will refine our forecasts going into the second quarter and will only update guidance when we have sufficient clarity. At this stage, we are still assessing new demand in AI-related areas, and we are investing in personnel and sales capability building for these new areas. We expect some moderate cost increases from these investments, but these costs are targeted at driving future growth and will not lead to a large decline in overall profit. We remain committed to delivering better results than our current guidance to meet shareholder expectations.

Q: How are you improving forecast accuracy for full-year results, and what metrics do you use to manage cancellation and lost order risk?

A: Almost all of our customers are on recurring medium-to-long term contracts, and we do not have heavy revenue concentration on any single large customer. Even the largest customers only account for 1-2% of total monthly revenue, so a cancellation of any single client will not have a material impact on our overall results. To manage smaller-scale cancellation risk, we proactively communicate with clients every month to understand their needs and prevent avoidable cancellations. We also focus on acquiring new clients consistently, and we tailor our processes to accommodate diverse client requirements for contracting, ordering, and workflow to reduce lost orders. We continuously monitor these processes to maintain stable performance.

Q: You are prioritizing profitability this term. When will you shift focus to balancing profitability and sales growth, and what is the plan for that transition?

A: We have not set a predetermined timeline for the transition. Our service model requires that we hire and train staff ahead of revenue growth when we expand quickly, which creates inherent risk. In the current rapidly changing market environment, especially with AI-driven shifts, it is important to remain flexible to evolving customer needs. We are testing new initiatives like AI training, and we will respond to customer demand incrementally. When we identify large, high-growth areas that are difficult for competitors to enter, we will shift to more aggressive growth in those areas. For now, we will keep our focus on profitability with no plans to erode margins, and we will publicly announce our growth plans once we have new initiatives on a solid track.

Q: What is the timeline for monetization of the AI training business, and what is the size of your target market?

A: We have already started sales and monetization of the AI training business. It is difficult to give a precise market size, but the AI reskilling market is already seeing a large wave of demand driven by corporate needs and government subsidies. Most companies are starting to prepare for a scenario where at least tens of percent of back-office work will be replaced by AI, so they need to assess how their workforce will adapt to AI operations and which roles will require reskilling. This assessment process will almost certainly involve widespread corporate investment in AI training. Large-scale enterprise adoption is just starting, but the market could quickly grow to several trillion yen in size.

Q: Do you plan to expand business alliances to acquire new customers, and if so, what industries do you target?

A: We do not have a top-down corporate plan to expand alliances as a core growth driver. We already receive inquiries from many potential partners, and we may pursue individual discussions, but we are not driving growth through an alliance-focused strategy. If we see strong opportunities, we will disclose them publicly. We see high demand from service industries like food and beverage in the recruitment support space, and we are exploring opportunities to support this segment. We also see potential for partnership-driven expansion in specialized segments like school corporations, and in existing client areas like accounting and payroll where many companies have unmet needs. Our general approach is responsive: we respond to incoming client and partner requests rather than proactively targeting specific segments, and we meet demand in any area where we can add value.

Q: What factors are driving the better-than-expected profit performance? Is it stronger-than-expected SG&A control, or benefits from streamlining the onboarding flow from account registration to service launch?

A: The primary driver is SG&A cost control, which includes improvements like streamlining the onboarding flow. Overall, these improvements have allowed us to acquire customers at lower cost while keeping customer acquisition costs low for the company. We are currently working to maintain and expand this efficient structure, and we were able to grow the number of client companies moderately while still achieving profitability in the first quarter. Beyond cost control, customer inquiry volume was stronger than we projected when we built our plan last year, which is another major factor driving the upside result. The strong alignment between customer demand and our current service lineup is the core driver; there are no single extraordinary factors, just accumulated incremental improvements that allow us to meet customer expectations. We do not own any office space, so we did not get large one-time costs savings from office reductions or layoffs. The main driver is the balanced alignment between strong customer demand and our optimized service offering.

Q: What position do you aim to establish in the AI-BPaaS integrated business model over the next 3 to 5 years?

A: The most important area for AI-BPaaS integration is the BPR (Business Process Re-engineering) domain, not the traditional operations domain. The core problem with traditional BPO services is the need for upfront BPR work to restructure customer processes, and BPR is an area where AI has enormous capability — AI is tens of thousands of times more capable than humans at this work. Because the traditional BPO operations space has high volume and high variation, it is less attractive to compete in that area, so we instead aim to take a leading position in the BPR space globally, not just in Japan. Almost no other industry players are currently focused on this positioning. Existing BPO players have legacy businesses to protect, so very few are aggressively expanding into this new AI-focused area. IT players typically lack deep BPO domain expertise. This gives us a unique opportunity with our distinct approach. Just as we were an early pioneer in remote work that no other player replicated, this could become a unique space that only Caster occupies, and we aim to secure this position long-term. Our ultimate goal is to become the leading provider of end-to-end AI-BPaaS integrated communication and process re-engineering services.