Members Co., Ltd. Q1 FY2027 Earnings Deep Dive Report

Members Co., Ltd. (Securities Code: 2130) reported record-high revenue for the first quarter of the fiscal year ending March 2027. However, the company posted an operating loss due to upfront investments and a temporary decline in utilization rates. The company is currently transitioning from traditional web operations and development to becoming a high-value, high-growth, and high-reward "Digital Implementation Partner" while expanding its AX (AI Transformation) domain . This report analyzes the key topics and the background of the company's performance during this period of structural reform.

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1. Earnings Highlights and Overview

In Q1 FY2027, revenue reached 5,750 million yen (+5.2% YoY) , and value-added sales —which represent revenue generated by internal resources—stood at 5,546 million yen (+4.8% YoY) , marking a record high for a first quarter.

On the profit front, the operating loss was 395 million yen (a decline of 325 million yen YoY) , reflecting an expansion in the deficit. This is attributed to the planned withdrawal from existing low-margin projects, a temporary dip in utilization rates following the hiring of 247 new graduates in April 2026, and aggressive upfront investments in recruitment, training, and sales/marketing.

Why this slide is important:

This slide serves as the summary sheet for the Q1 FY2027 earnings, covering consolidated financial results and key performance indicators (KPIs) . It visually demonstrates that behind the seemingly contradictory movement of rising revenue and declining operating profit lies a positive structural shift, such as the expansion of the DX domain ratio (58.3%) and the surge in AI/data-related revenue (+83.6% YoY) . It is a critical data point for grasping the progress of the company's "DX on-site support" and "AX services" at a glance.

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2. Analysis of Q1 Growth Slowdown and Operating Loss

The company has clearly identified three factors contributing to the slowdown in revenue growth and the shortfall in operating profit during the first quarter:

1. Project Reductions Due to Middle East Tensions : Global instability led some key clients to curb investments and scale back projects.
2. Planned Withdrawal from Low-Margin Projects : The company is strictly enforcing higher profitability standards and phasing out traditional, low-margin, and low-growth web operation projects.
3. Acceleration of AI Substitution for Specific Skills : The widespread adoption of generative AI and the progress of in-house development at client companies have led to a sharp decline in demand for outsourced work limited to traditional, single-skill tasks.

Why this slide is important:

This is the core slide of the earnings presentation, as it goes beyond the "results" to clarify the causal relationships and updates to business strategy , explaining "why growth slowed" and "where the company is headed." Rather than dismissing the results as mere external headwinds, the slide articulates the company's unique positioning as "FDE (Forward Deployed Engineer) = Atakamo Shain®" (engineers who work on-site as if they were employees) . It provides the rationale for accelerating the evolution into a "Digital Implementation Partner" that goes beyond mere PoC (Proof of Concept).

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3. Key KPI Trends: Evolution into a "Digital Implementation Partner"

As the company advances its structural reforms, KPIs reflecting the quality of profitability are showing steady improvement and change.

• Increase in Revenue per Employee : Revenue per employee rose to 958 thousand yen (+7.8% YoY) . The withdrawal from low-margin projects and the shift toward high-value-added DX/AX domains have successfully driven up unit prices.
• Rapid Expansion of DX Domain Ratio and AI/Data Revenue : The DX domain ratio reached 58.3% (+6.2pt YoY) . Furthermore, AI/data-related revenue , a key focus for the entire company, showed remarkable growth of +83.6% YoY , expanding its share of consolidated revenue to 15.0% (+6.4pt YoY) .

Why this slide is important:

This slide most prominently displays the results of the company's business portfolio transformation. In addition to the shift toward the DX domain (58.3%), the graph clearly shows the vertical takeoff of AI/data-related revenue (+83.6% increase) . This serves as evidence that the company's future growth driver as a digital support firm has fully shifted toward the AI/data sector, making it an essential chart for gauging confidence in future earnings expansion.

• Utilization and Personnel Trends : While the utilization rate (excluding first and second-year new graduates) was 79.9% , a decrease YoY, the utilization rate for second-year new graduates has improved significantly. The number of Digital Creators (DCs) at the end of Q1 was 2,666 (+210 from the end of the previous fiscal year) , with those in their second year or above totaling 2,419 (+50) , indicating steady progress in securing the human capital foundation for future project expansion.

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4. Progress in Large-Scale Client Acquisition (ABM Strategy) and Specialized Companies

The company is strengthening its ABM (Account Based Marketing) strategy , which aims to maximize revenue per client.

• Increase in Large-Scale Clients : The number of clients with annual revenue of 100 million yen or more reached 51 (+2 YoY) , and those with 300 million yen or more reached 11 (+2 YoY) . The company also holds 65 clients in the 50–100 million yen range, who are potential future large-scale accounts, building a solid customer base.
• Expansion and Growth of Specialized Companies : Value-added sales from "Specialized Companies"—which focus on specific technologies or industries—maintained a high growth rate of 2,927 million yen (+22.3% YoY) . There are now 21 such companies , including the newly launched "AI-PROX Company," which supports business transformation through generative AI and AI agents, capturing demand in the AX sector.

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5. Full-Year Earnings Forecast and Shareholder Return Policy

Full-Year FY2027 Earnings Targets (Unchanged)

Despite the operating loss in Q1, the company has maintained its full-year earnings forecast , anticipating the acquisition of high-margin projects and the strengthening of AI support services toward the second half of the year.

• Revenue : 26,866 million yen (+10.0% YoY)
• Value-added Sales : 26,154 million yen (+11.3% YoY)
• Operating Profit : 2,500 million yen (+56.2% YoY)
• Operating Profit Margin : 9.3%

Capital Policy and Shareholder Return Policy

The company prioritizes a balance between growth investment and stable shareholder returns.

• DOE (Dividend on Equity) : The basic policy is to maintain a DOE of 5% or higher consistently.
• Annual Dividend Plan : The company plans a dividend of 35.0 yen per share (+2.0 yen YoY) for FY2027, which would mark the 15th consecutive year of dividend increases .
• ROE (Return on Equity) Target : The company has set a medium- to long-term target of 25% or higher , aiming to maintain high capital efficiency upon the completion of its business structural transformation.

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Conclusion

Members Co., Ltd.'s Q1 FY2027 results represent a "painful transition period" characterized by operating losses due to the withdrawal from low-margin projects and upfront investments. However, the internal structure shows steady progress in transforming into a high-quality "Digital Implementation Partner," evidenced by the increase in revenue per employee (958 thousand yen) , the surge in AI/data-related revenue (+83.6%) , and the steady accumulation of large-scale clients . The key points to watch moving forward will be the recovery in utilization rates from Q2 onwards and the successful conversion of AX projects to meet the full-year operating profit target of 2,500 million yen.