Consolidation of Korabo Tekuno's P&L lifted 3Q cumulative revenue +44.3% YoY and prompted an upward revision to full-year revenue guidance. Focus now shifts to the AI Native transformation built around VAAP and to securing profits in 4Q.

Key Positives From The 3Q Results

3Q cumulative revenue came in at JPY 1,103M, +44.3% YoY (company disclosure; prior-year period on a non-consolidated basis). This was 111.8% of the initial 3Q cumulative plan of JPY 987M. The 1H P&L effectively reflects Hmcomm Inc. on a non-consolidated basis, and Korabo Tekuno's P&L is included for only one quarter (3Q). The cumulative figures therefore capture only part of the company's earnings power. NaNa, FD-X and the VAAP concept are more than cost-cutting measures. They mark a shift toward an "AI Native Platform company" built on reusable components. If the build-up of recurring revenue is confirmed in the numbers, there is scope for a re-rating of the stock's multiple.

• 3Q standalone operating income was JPY 34M (our estimate), up from JPY 3M in 1Q and JPY 10M in 2Q. Profit stepped up in the first quarter of P&L consolidation
• Quarterly SG&A declined from JPY 143M to JPY 128M to JPY 124M despite the wider consolidation scope (our estimate). This suggests NaNa-driven back-office reforms are starting to pay off
• AI Solutions (FDE) average project value rose +72% YoY to JPY 5.5M, and project count rose +11% YoY to 145. Growth in both pricing and volume shows the mix is shifting toward higher value-added projects
• VAAP comprises six Suites built from 30 Agent components. The Customer Harassment Countermeasures Suite reuses Terry2's inbound call Agent. This development model, which launches new Suites quickly by recombining components, is working as intended
• FAST-D was deployed at Shikoku Electric Power in June 2026 and at Toho Gas Energy Engineering in August 2026. Commercial adoption by private-sector infrastructure companies continues, laying the foundation for PASP's ARR base

Key Concerns From The 3Q Results

3Q standalone gross margin fell to 33.0% from 45.8% in 1H (our estimate). This is consistent with the mix shift from consolidating Korabo Tekuno, whose business is rooted in man-month and SES-based work. Margin recovery hinges on progress in the AI-FDE upgrade. To hit full-year operating income of JPY 101M, 4Q alone must deliver JPY 53M (OPM 11.9%, company disclosure). That exceeds the JPY 47M generated through 3Q.

• 3Q standalone operating income of JPY 34M fell short of the prior-year non-consolidated figure of JPY 45M (our estimate). Conversion of incremental revenue into profit still has room to improve
• The full-year AI Products plan was cut by JPY 194M, from JPY 549M to JPY 355M. Implied 4Q revenue is only JPY 45M, as the revenue dip during the transition to a platform model becomes visible
• AI Products accounts for 28.0% of revenue, well short of the 70% medium-term target. The 37 accounts are roughly flat versus 38 a year earlier
• Income taxes of JPY 37M (including JPY 26M in deferred income taxes) weighed on the bottom line, leaving net income at JPY 12M. This represents only 37.9% of the full-year plan
• Goodwill of JPY 341M equals 20.2% of shareholders' equity (our estimate). Impairment risk warrants attention should PMI be delayed

Focus Areas / Items To Monitor Going Forward

• Margin Improvement At Korabo Tekuno
  : PROJECT FLY2026 targets an AI-driven development team of about 30 engineers and the release of around 120 AI Agents. The company plans to migrate to the new development structure in January 2027. How far gross margin recovers in the shift from man-month to AI-FDE models will drive next fiscal year's profit growth
• Visibility On VAAP Recurring Revenue
  : The company has set ARR and number of active customers as priority KPIs for FY2027. The key is disclosure of how much recurring billing builds through the full on-premises version of ZBOX (slated for release from mid-December) and the production rollout with DNP Koaraizu (targeted for April 2027)
• Transition Of PASP (FAST-D) To Ongoing Monitoring Services
  : Beyond the Monitoring Edition for Shikoku Electric Power and Toho Gas Energy Engineering, the scope is expanding to the drive-by method and sewer corrosion prediction. We want to see whether both private infrastructure and municipal clients can move from proof-of-concept to monthly billing

Key Financial Highlights

YoY figures are as disclosed in the earnings presentation. The prior-year period is non-consolidated, while Korabo Tekuno's P&L has been consolidated from 3Q of the current fiscal year. YoY changes for gross profit, SG&A and EPS, and the margin differences, are our estimates based on prior-year non-consolidated XBRL data. Non-operating expenses include a JPY 2M donation for Kumamoto earthquake relief. EBITDA follows the company's definition: operating income plus depreciation and goodwill amortization.

Performance By Business Segment

The company operates a single segment ("AI × Sound" Science Business). AI Solutions accounts for 72.0% of revenue (our estimate) and is driving growth. Adding Korabo Tekuno's P&L from 3Q raised the scale and pricing of AI Solutions but diluted gross margin.

Segment Performance Table

Progress Versus Full-Year Guidance

Revenue progress of 71.2% is ahead of the prior-year 68.8% (our estimate). 3Q standalone revenue of JPY 479M already exceeds the JPY 446M required in 4Q, putting the revenue plan within reach at the current run-rate. Operating income progress of 47.3% also beats last year's 23.7%, but 4Q requires an OPM of 11.9%. That is above both the 3Q standalone 7.1% and the prior-year 4Q 8.4% (both our estimates). Delivery hinges on booking acceptances as planned and maintaining cost discipline.

• The company's 4Q priorities are securing acceptances and revenue recognition, and locking in recurring billing. Last year's 4Q standalone revenue was JPY 347M (31.2% of the full year) and operating income was JPY 29M, with revenue and profit concentrated in 4Q (our estimate)
• In FY12/2026, Korabo Tekuno's P&L has been consolidated from 3Q. 4Q will be the second quarter of consolidation, so the basis of comparison differs from the prior-year period

Changes To Guidance

On November 13, the company revised its full-year guidance. Revenue was raised by JPY 100M (+6.9%), while guidance for all profit lines was left unchanged. AI Solutions is tracking above plan and AI Products below, tilting the revenue mix further toward Solutions.

• Revenue: JPY 1,450M → JPY 1,550M
• Operating Income: JPY 101M → JPY 101M
• Recurring Profit: JPY 100M → JPY 100M
• Net Income: JPY 31M → JPY 31M
• Reasons For Revision: AI Solutions was raised by JPY 295M on an increase in large-scale projects, while AI Products was cut by JPY 194M. Profit guidance was held because the current year now absorbs investment for FY2027 and beyond, including specialist hiring, R&D, expansion of the sales partner network, and PROJECT FLY2026. Planned OPM falls from 7.0% to 6.5%

Commentary On Shareholder Returns

The annual dividend forecast remains unchanged at JPY 0.00. There was no new reference to share buybacks. The company intends to deploy cash into a strategic investment budget of JPY 100M–300M per year (equity investments and M&A), and capital allocation prioritizes growth investment.

Financial Position

The equity ratio stands at 85.0% and net cash at JPY 1,012M, keeping the company effectively debt-free. Even after absorbing JPY 270M in assets and JPY 200M in liabilities from the Korabo Tekuno acquisition, the company retains capacity to fund further M&A.

Disclosures Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• Koji Mitsumoto: 35.5%→34.3% (2025/11/26) - Held as a stable shareholder in his capacity as founder and director, with the aim of participating in and stabilizing management (amended report reflecting changes to material contracts, including collateral agreements)