Members Co.,Ltd. Q4 FY2025 earnings call

Overall Financial Performance

• Total sales revenue hit a record 22.3 billion yen, up 9.1% YoY; total value-added sales hit a record 21.2 billion yen, up 10.8% YoY
• Operating profit reached 493 million yen, beating the upwardly revised plan of 400 million yen; after adding back a 60 million yen special bonus for employees, pre-bonus operating profit was 562 million yen, with gross margin at 21.2% improving solidly YoY
• Digital Creator (DC) headcount reached 2,627, up 145 from the prior year end, with growth limited by restrained hiring; turnover rose 2pp to 11.1% due to industry labor market conditions and prolonged low utilization
• Sequential growth acceleration: H2 value-added sales growth rose to 11.2% YoY from 10.3% in H1, reversing two years of declining growth rates

High-Profit Structure Recovery

• Shifted management focus to raising utilization and prioritizing profit, after years of aggressive pre-emptive hiring; restrained overall hiring, cutting new graduate hiring from 411 to 87 and reducing mid-career hiring
• Utilization for DC excluding first/second-year new graduates recovered to 85.4%, matching FY2024 levels; second-year new graduate utilization also recovered to prior year levels, while first-year new graduate utilization remains at 28.6% with room to improve
• Successful cost control reduced SG&A ratio by 2.1pp, putting the build of a lean, high-profit organization ahead of plan

High-Growth DX Business Establishment

• Reorganized into 4 DX-focused business units, growing average revenue per top 50 DGT client to 71 million yen (up 6.7% YoY), with the number of clients generating over 100 million yen in annual sales rising 9 to 55
• Cross-selling across the 4 DX units is progressing, with PMO, UX, Salesforce and data specialist units driving growth as high-demand DX services
• Secured a position supporting client in-house DX transformation; PMO talent training exceeded plan, with 358 PMO talents trained vs. an initial target of 120
• Average revenue per DC rose 3.5pp YoY to 913,000 yen, and rose 7.2pp YoY when limited to existing DC, driven by the shift to higher-value DX work

Competitive Positioning and Long-Term Investment

• Targets the high-growth DX on-site support/companion positioning for client in-house DX, which is underserved amid widespread industry talent shortage; holds competitive advantages including hands-on support from ~2,600 specialized digital talents, dedicated "like an employee" client teams (registered trademark), and flat-structure cost competitiveness lacking consultant/SIer layer hierarchies
• Invests in establishing a decarbonization DX business and cultivating related talent, building a new future growth area as client investment in this space grows

Non-Financial Strategic Priorities

• Prioritizes improving employee engagement to recover from weakened mission/vision management focus during the prior year's restructuring; targets raising employee engagement scores from an already-above-average 3.41
• Targets a 2pp increase in NPS (to -1.5pp) after a 5.5pp increase in FY2025, and continues expanding decarbonization action scores, which grew 143.5% YoY in FY2025

1. DX Segment: Total value-added sales grew 30.8% year-over-year. Within the DX segment, Digital Service Development grew 27.9% YoY, and Data Utilization Support grew 20.0% YoY. DX-focused specialist companies recorded 36.6% YoY value-added sales growth. As of Q4 FY2025, the DX segment accounted for 41.5% of total company value-added sales. 2. Traditional (Non-DX) Segment: The segment experienced slowing growth and slight contraction, offsetting part of the DX segment's strong growth to bring total company growth to ~10% YoY.

• For FY2026 (ending March 2026), targets sales revenue of 24.318 billion yen (+8.9% YoY), value-added sales of 23.62 billion yen (+11.0% YoY), and operating profit of 1.214 billion yen, with operating profit margin improving sharply from 2.2% to 5.0%

• Turnover increased 2pp to 11.1% driven by prolonged low DC utilization and tight overall digital labor market conditions, which may impact growth if not addressed
• Low utilization among recent large new graduate cohorts (28.6% for first-year new graduates as of FY2025 end) creates near-term profit drag if utilization does not improve as planned
• Overall digital DX talent shortage in the broader market may limit the company's ability to hire enough talent to support its medium-term 15%+ growth target
• The traditional business segment's ongoing contraction may offset DX segment growth and slow overall company growth in the near term during the transition

Q: Can you explain your employee training status, the SINCA program, and Members' core strengths in talent development? / A: SINCA is a company-wide program launched in H2 FY2025 to retrain traditional web creators for high-demand DX roles, with nearly 1,000 employees already enrolled. The program is being expanded to cover more roles and add more advanced training, accelerating internal skill conversion to DX. Members' key strength is that it already has 20+ DX specialist units with existing open roles for trained talent, eliminating the common problem of unplaced trained DX talent; internal job postings allow trained employees to move directly to DX roles, supporting diverse career growth. Additionally, Members has a culture of growth-focused employees with high collective orientation, and employee training is included in formal performance evaluations, creating company-wide buy-in for talent development.

Q: Is DX already more profitable than the traditional segment, and is the FY2026 upper-half profit forecast conservative? / A: The DX segment already has higher average unit pricing and higher profit margins than the traditional segment, and the ongoing shift to DX is the core driver of rising average per-DC revenue and overall company profitability. The FY2026 H1 forecast of an 11.366 billion yen top line with a 500 million yen operating loss is not an aggressive stretch target, but a realistic achievable number. The sharp drop in new graduate hiring (from 411 to 87) eliminates the large drag on H1 profits from unutilized new hires that existed in prior years, and the 411 new hires from last year have 70% unused utilization capacity that will be filled in FY2026, driving a clear profit improvement in H1.

Q: What is your approach to new graduate hiring for next April, and what is the planned balance between new graduate and mid-career hiring going forward? / A: The current strategy is to hold hiring within the range of current growth, to raise utilization before expanding hiring again. Medium-term, Members targets 15%+ annual growth, which will require increasing hiring again over the next 1-2 years after the current sharp reduction. There is no plan to immediately return to 400 new graduates per year, but hiring will be gradually increased as growth accelerates. Members will maintain new graduate hiring as its core, while also expanding mid-career hiring. Given the widespread industry DX talent shortage, it will focus on in-house cultivation rather than competing for existing trained talent, and will lower barriers between new and mid-career hiring to adopt a cultivation-focused approach that applies to both groups, as the line between the two hiring categories continues to blur amid rising young worker mobility and cross-industry career transitions.