Members Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Despite higher revenue, this quarter saw an expansion of the operating loss and deteriorating profitability due to a sharp increase in selling, general and administrative expenses (SG&A). Revenue increased to ¥57.50B (¥54.67B in the same period of the previous year, YoY +5.2%), while the operating loss widened to ¥3.96B (a loss of ¥0.70B in the previous year). The loss before tax was ¥3.46B (a loss of ¥0.44B in the previous year), and the quarterly net loss attributable to owners of the parent was ¥2.53B (a loss of ¥0.41B in the previous year). The main factor behind the deterioration in earnings was the expansion of SG&A expenses on a scale exceeding the benefit from higher revenue.

Factors Affecting Financial Performance

【Revenue】The Company operates as a single segment, the DX Co-Creation Support Services Business, and does not disclose a breakdown by segment. Revenue increased to ¥57.50B, up +5.2% year on year (+¥2.83B).

【Profit and Loss】Cost of sales increased to ¥46.95B (¥44.26B in the previous year), and the gross margin declined by 0.6pt to 18.4% (19.0% in the previous year). SG&A expenses increased by +30.6% to ¥14.52B (¥11.12B in the previous year), and the SG&A ratio rose by 5.0pt to 25.3% (20.3% in the previous year). SG&A growth substantially exceeded the revenue growth rate of +5.2%, resulting in the expansion of the operating loss to ¥3.96B (a loss of ¥0.70B in the previous year). Although financial income of ¥0.53B (¥0.31B in the previous year) was recorded, it was insufficient to offset the operating loss, resulting in a loss before tax of ¥3.46B (a loss of ¥0.44B in the previous year). In addition, the recognition of income taxes and other expenses of ¥0.93B (¥0.03B in the previous year) contributed to the expansion of the net loss to ¥2.53B (a loss of ¥0.41B in the previous year). No temporary factors such as extraordinary gains or losses have been identified. In conclusion, the quarter was characterized by higher revenue but lower earnings, with an expanded operating loss.

Key Financial Indicators

【Profitability】The operating margin was -6.9% (-1.3% in the previous year), the net margin was -4.4% (-0.8% in the previous year), and the gross margin was 18.4% (19.0% in the previous year). All deteriorated from the previous year, with the increase in SG&A expenses weighing on profit as fixed costs.【Cash Flow Quality】Operating cash flow (OCF) was -¥1.23B (+¥2.71B in the previous year), while free cash flow was -¥1.38B, indicating weak cash-generating capacity relative to the net loss.【Investment Efficiency】ROE was -4.2% (-0.6% in the previous year), indicating deteriorating capital efficiency due to the recognition of a net loss.【Financial Soundness】The equity ratio was 51.5% (52.0% in the previous year). Current assets of ¥77.40B against current liabilities of ¥51.33B resulted in a current ratio of approximately 150.8%, indicating that liquidity has been secured. Total assets decreased to ¥115.68B (¥127.71B in the previous year), while net assets declined to ¥59.63B (¥66.40B in the previous year), primarily due to a decrease in retained earnings resulting from the recognition of a net loss and dividend payments.

Cash Flow Analysis

OCF was -¥1.23B (+¥2.71B in the previous year), indicating weak cash-generating capacity relative to the net loss of -¥2.53B. Although cash flow from operating activities before taxes and other adjustments secured ¥2.00B, OCF turned negative due to an increase in income taxes and other taxes paid to ¥3.20B (¥1.52B in the previous year). In terms of working capital, trade receivables decreased by ¥6.83B, contributing positively, while an increase in inventories of ¥0.47B and a decrease in trade payables of ¥0.43B were negative factors. Investing cash flow was -¥0.15B, primarily reflecting capital expenditures of ¥0.15B. Financing cash flow was -¥5.57B, with dividend payments of ¥4.09B and lease liability repayments of ¥1.48B accounting for the main cash outflows. Free cash flow was -¥1.38B (OCF + investing cash flow). As a result, cash and cash equivalents decreased by ¥6.96B during the period, leaving an ending balance of ¥37.40B.

Earnings Quality

The net loss resulted from the recurring factor of deteriorating operating performance, and no temporary items such as extraordinary gains or losses have been identified. Financial income of ¥0.53B (¥0.31B in the previous year) appears to have been generated from financial assets held and partially supplemented the operating loss. Comprehensive income was -¥2.56B, remaining at approximately the same level as the net loss attributable to owners of the parent of -¥2.53B. Other comprehensive income consisted solely of a valuation difference on other securities of -¥0.03B, resulting in only a small divergence from net income and no significant distortion of earnings quality. However, income taxes and other taxes paid of ¥3.20B exceeded cash flow from operating activities before taxes and other adjustments of ¥2.00B, suggesting that cash-based earnings power is weaker than indicated by accounting earnings.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥268.66B, operating income of ¥25.0B (YoY +56.2%), and net income of ¥17.36B (YoY +43.1%). Revenue progress in Q1 was 21.4%, below the 25% benchmark for evenly distributed quarterly progress. Both operating income and net income were negative, representing a significant delay relative to the full-year plan to achieve profitability. No revisions have been made to the earnings forecast or dividend forecast. Achieving the full-year plan requires a significant improvement in profitability over the remaining three quarters.

Shareholder Returns

Dividend payments for the cumulative Q1 period were ¥4.09B (¥3.93B in the previous year). The full-year dividend forecast is ¥35.00 per share. Based on 12,818 thousand shares, calculated by deducting treasury shares from the number of shares issued at the end of the period, total dividends are estimated at approximately ¥4.49B, resulting in a payout ratio of approximately 25.8% against the full-year net income forecast of ¥17.36B. Share repurchases were minimal at ¥0.005B, and the Total Return Ratio, including dividends, is not materially different from the payout ratio. As the Company recorded a net loss in Q1, calculating the payout ratio based on actual earnings for the period is not meaningful. Free cash flow was -¥1.38B, indicating that dividends were not covered by cash flow as of the quarter-end. No revision has been made to the dividend forecast.

Risk Factors

1. Profitability deterioration risk: The operating margin deteriorated to -6.9% (-1.3% in the previous year), while SG&A expenses increased by +30.6% year on year. Fixed costs are expanding at a pace substantially exceeding the revenue growth rate of +5.2%, causing operating leverage to work in the opposite direction.

2. Declining cash-generation risk: OCF was -¥1.23B (+¥2.71B in the previous year), and free cash flow was also negative at -¥1.38B. Income taxes and other taxes paid of ¥3.20B exceeded cash flow from operating activities before taxes and other adjustments of ¥2.00B, indicating that cash-based earnings power is weaker than accounting earnings.

3. Single-business structure risk: The Company is disclosed as having a single segment, the DX Co-Creation Support Services Business, limiting diversification within its business portfolio. Trade receivables of ¥36.23B account for 46.8% of current assets of ¥77.40B, and collection trends could affect cash management.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's operating margin and net margin are both substantially below the industry median, indicating that profitability is trailing the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, and the pace of growth is below the middle range within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The fact that SG&A growth (+30.6%) substantially exceeded revenue growth (+5.2%), causing operating leverage to work in the opposite direction, warrants attention as a sign of structural deterioration in profitability.

2. Revenue progress of 21.4% was below the benchmark for evenly distributed quarterly progress, while both operating income and net income were negative, resulting in a significant gap from the full-year profitability plan (operating income of ¥25.0B and net income of ¥17.36B).

3. Goodwill of ¥2.51B represents only 4.2% of net assets, and the financial base has been maintained with an equity ratio of 51.5%. However, the continued negative OCF and free cash flow make the timing of future earnings improvement a key focus.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥776–¥824 for a ±1% change in the cost of equity, and ¥790–¥814 for a change of ±0.1 in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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