Consolidated Financial Results for the First
Quarter of the Fiscal Year Ending March 31, 2023
(From April 1, 2022 to June 30, 2022)

Financial Results Briefing Materials
July 29, 2022

Digital Arts Inc.
(Securities Code: 2326)
Copyright © 2015 Digital Arts Inc.

Contents➢ Consolidated Results Highlights➢ Non-consolidated Results Highlights➢ By Market➢ Full-Year financial Forecast for the Fiscal Year Ending March 2023

➢ FY03/23 Initiatives➢ Return to Shareholders for Fiscal Year Ending March 31, 2023

2

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of
the Fiscal Year Ending March 31, 2023

Consolidated Results Highlights

3

Copyright © Digital Arts Inc.

Consolidated Results Highlights

Contracts

Net sales

2,246million yen(up +267 million yen or +13.5%
year on year)

2,386million yen(up +466 million yen or +24.3%
year on year)

Operatingprofit1,009million yen(up +278 million yen or +38.0% year
on year)•

Orders increased in the enterprise sector market, reflecting new deals
that the Group won by adding new functions to mainstay products tomeet demand for total security and by implementing a strategy to
expand sales to specific targets and growth in new customers for DAC.

•In the public sector market, new projects related to the GIGA School
Concept were running their course. Meanwhile, orders from publicagencies and local governments were strong.

•

Net sales increased in the enterprise sector market due to increases in salesof license sales products and cloud service products reflecting increases incontracts for those products and growth in new customers for DAC.

•In the public sector market, orders received for i-FILTER projects (GIGA,
public agencies, local governments) increased.

•

In cost of goods, server expenses increased due to growth in cloudservice users•

SG&A expenses were affected by an increase in advertising expenses,
including press advertising, and an increase in hiring expenses after
DAC increased consultants.

4

Copyright © Digital Arts Inc.

Consolidated Results Summary
FY March 2023 FullYear Forecast

FY March 2022
1Q

FY March 2023
1Q

Contracts

1,979

2,246

+13.5％-Net sales

1,919

2,386

+24.3%

10,500613

766+24.9%

3,350

1,305

1,619

+24.0%

7,150

Selling, general andadministrative expenses

574

609

+6.2%

2,450

Operating profit

731

1,009

+38.0%

4,700

38.1%

42.3％

Ordinary profit

732

1,019

+39.1%

4,700

Profit attributable toowners of
Parent506

702+38.5%

3,250

EBITDA

966

1,268+31.3％(Million yen)

Cost of goods sold
Gross profit

Operating margin

Change YoY

44.8％

-

-

※ * Financial Forecast is the consolidated financial forecast announced on May 10, 2022.
※ * EBITDA = Operating profit + Depreciation + Tax expenses included in operating expenses

5

Copyright © Digital Arts Inc.

Trend in Consolidated Contracts
Consolidated contracts totaled 2,246 million yen, up +13.5% year on year.
Trend in Contracts
License sales
products/Others

Cloud service
products+13.5%(Million yen)Contracts increased steadily in both theenterprise sector market and the public sector
market.

2,246

1,979
762
38.8％

61.2％

768

1,210

Contracts for cloud service products declined
0.8% due to a fall in GIGA School Concept
projects in the public sector market, which waspartially offset by steady orders for new projects
in the enterprise sector market.

33.9％

△0.8%

＋22.6%FY Mar. 2022 1Q

1,484

Contracts for license sales products and otherproducts rose 22.6%, reflecting strong orders
for new projects in the enterprise sector market
and strong orders for public agency and local
government projects in the public sector market.

66.1％

FY Mar. 2023 1Q

6

Copyright © Digital Arts Inc.

Trend in Consolidated Contracts
Contracts for cloud service products were strong in the enterprise sector, except for the

impact of GIGA School Concept projects.
Trend in Contracts
License sales
products/Others

Cloud service
products

Contract amount for cloud service products rose by(Million yen)
GIGA School Concept
projects

5.1% (362 million yen in the year under review
compared with 345 million yen in previous year),

2,246
1,979

excluding the impact of GIGA School Concept

416

491

projects (416 million yen in the year under review
compared with 491 million yen in previous year).

362
+5.1%

345

Orders for cloud service products were strong,

1,488
1,143

+28.4%FY Mar. 2022 1Q

1,468

reflecting increasing demand for security in the

1,830

cloud environment primarily in the enterprise
sector market.

FY Mar. 2023 1Q

7

Copyright © Digital Arts Inc.

Trend in Order Backlog
Sales of GIGA School Concept projects were posted, and orders for cloud service projects
increased.
•
Trend in Order Backlog
Sales to be recorded in thenext three quarters (2Q-4Q)

New contracts for GIGA School Concept projects, many ofwhich are five-year contracts, have run their course as a result[Million yen]of the widespread use of learning terminals*, and sales ofSales recorded for thefollowing fiscal year and later

GIGA projects will decline from the next fiscal year. The
projects will be moving to a contract renewal phase gradually.

6,497

6,427

•

Sales posted in the fiscal year under review increased due to arise in orders for cloud service products, for which contracts
are mostly one-year contracts.

4,400△11.5%

3,893•

Characteristics of cloud service products (please refer to supplementary
information in pp. 9 and 10)•

Contract amount is recorded as sales on a pro rata basis, split into equal monthly
amounts, over the contract period. As a result, the longer the contract period, thelarger the contract amount that is deferred (order backlog).

2,097+20.9%

2,534•

Since the contracts are renewable at fixed prices (whereas the renewal price forlicense sales products is half the contract price for the first year), this recurring

revenue business model creates a stable profit base.

End of 1Q

End of 1Q

FY March 2022

FY March 2023

*Progress against the goal of providing a terminal to each pupil in compulsory education (Ministry of
Education, Culture, Sports, Science and Technology)
https://www.mext.go.jp/content/20220204-mxt_shuukyo01-000009827_001.pdf
Copyright © Digital Arts Inc.

Supplement）Method of recording sales by productContract period (n months)＋1 month

Contracts

Equivalent tomaintenance fee
Equivalent tolicense fee

License sales
products

OrderbacklogNetsales

Y months
Y+1(contract months) months•

License fees make up a large proportion of thecontract amount. This portion is recorded in a lumpsum as sales in the month when the contract isobtained.

•

Amount equivalent to maintenance fee is recorded
on a pro rata basis over the contract period.

•

Contract amount is recorded as sales on a pro rata
basis over the contract period (split into equalmonthly amounts).

•

As the contract amount of cloud service products
rises, the contract amount that is deferred (orderbacklog) increases.

・・・

Amount equivalent to maintenance fee isprorated over contract period "n"Y+2months・・・

Y+nmonthsY+n+1
monthsContract period (n months)

Contracts

Contract amount is prorated
over contract period "n"Cloud service
products

Orderbacklog

・・・

Net
sales

Y months
Y+1(contract months) months

Y+2
months

9

・・・

Y+n-1
monthsY+nmonthsCopyright © Digital Arts Inc.

Supplement) Relationship between contract amount and sales by product

Many projects in the public sector market are multi-year contracts, such as five-year contracts.
License sales products and cloud service products both earn from contract renewals.
License sales products
Cloud service products

500
Trend in Contracts

250

250

The diagrams on the left show the relationships between the contract
amount and sales in license sales products and cloud service products on

10 500500

Year X

Year
X+1

X年

X+1
年

…

Year
X+4

Year
X+5

X+
4年

X+5
年

the assumption of a five-year contract with an amount of 500 million yen.

500

Year
X+9

Year
X+10

X+6 … X+9
年
年

X+1
0年

Year …
X+6•

between the contract amount and sales. The order backlog is high.

Change in Net Sales•

210

Year XFor license sales products, a high percentage of sales is recorded at the timeof contract conclusion. The amount of contract renewal is half the amount of

460

100

In a multi-year contract for cloud service products, there is a large gap

1010100 … 100
Year
X+4

Year
X+1

…

210

the initial contract. That means a small gap between the contract amount andsales and a very limited order backlog.

100

10
10
100 … 100

100

Year
X+5

Year
Year
…
X+9
X+6

Year
X+10

10

Copyright © Digital Arts Inc.

Trend in Net sales, Operating profit
For the third quarter, net sales and operating profit hit record highs(Million yen)

9,051

1Q

2Q

3Q

4Q

2,364

6,825
5,839

5,639

1,674

1,500

1,402

1,376

2,074

2,134

4,126
1,649

1,546

2,627
954

2,977
2,326

1,514

679

1,687

1,217

740
295

1,249

683
413

1,413

Net sales

OperatingprofitNet sales

OperatingprofitNet sales

FY March 2019

FY March 2020

825

1,919

FY March 2021

11

1,348

2,386
1,009

731

485
Operatingprofit

1,101
945

1,004
663

551

638

2,632

Net sales

OperatingprofitFY March 2022

Net sales

OperatingprofitFY March 2023
Copyright © Digital Arts Inc.

Consolidated Cost of Goods Sold and Selling, General and
Administrative Expenses
FY March2022 1QFY March2023 1Q

Change
YoY

613

766

+152

Labor

332

354

+21

Depreciation

204

221

+16

Communication
expenses

124

244

+121

Other

179

169

△10

△225

△222

+2

Selling, general andadministrative expenses

574

609

+35

Personnel expenses

323

302

△20

Advertising expenses

59

77

+17

Increase due to and press advertising.

Other

191

229

+38

Hiring expenses swelled after DAC increased
consultants.

(Million yen)
Cost of goods soldTransfer to otheraccounts

12

Main Factors for Change

DAC increased consultants

Cloud server expenses will rise as a result ofsales expansion of cloud products.

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Cost of Goods Sold
Cloud server expenses will rise as a result of sales expansion of cloud
products.
Transfer to other accounts

Cost of goods sold

Other

Communication expenses

Depreciation

Labor

839

723

548

93

108

29 18326482
91

29 196

1Q

114
195

189

141

121

60

175

216

221

2Q

3Q

4Q

45

225

87

2Q

244

223

124

206

427

324

349

332

3Q

4Q

1Q

FY March 2021

2Q

330

349

354

3Q

4Q

1Q

FY March 2022

13

766

736

624

613

486

221

217

214

204

701

447
254

222

220

158

202

427

1Q

321

210

584

262

164

170
226

208

198

377

353

151

179

173

153

213
237

32

212

FY March 2020

622

183
34

198

198

343

286

197

110

203
192

165

565

989

921

793

526

962

946

609

(Million yen)

FY March 2023
Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Selling, General and
Administrative Expenses
・Increase due to and press advertising.
・Hiring expenses swelled after DAC increased consultants.
Personnel expenses

Advertising

otherOverseas

660
609
574

548
13

169
487
12

473

501

443

211
167

46

195

179

161

1Q

262

246

2Q

3Q

FY March 2020

153
44

210

4Q

1Q

159

193

59

77

58

51

70

277

263

3Q

4Q

432
301

218

2Q

229

59

166

34
272

526
487

485
191

32

47
43

253

499
414

190
70

(Million yen)

3Q

FY March 2021

14

262

4Q

323

1Q

2Q

FY March 2022

302

1Q
FY March 2023

Copyright © Digital Arts Inc.

Summary of Consolidated Balance Sheet
Capital efficiency was good, with year-on-year improvement in both ROE and ROA.
Despite an increase in advances received, the equity ratio increased. Financial health has improved further.
(Million yen)

As of end of 1Q FYMarch 2022

As of end of FY
March 2022

As of end of 1Q FYMarch 2023

Change from end
of FY March 2022

14,344
13,133

17,105
15,773

16,99015,575

△0.7％

2,132
16,476

2,236
19,341

2,213
19,204

△1.0％

6,269
5,236

7,130
5,684

6,848
5,777

△4.0％

50
10,137
10,15750
12,12912,15950
12,273
12,304

△0.1％

ROE

61.5%
5.0%

62.7%
26.2%

63.9％
5.8％

ROA

3.2%

17.0%

3.6％

Current assets
Cash and deposits
Non-current assets
Total assets
Current liabilities
Advanced received
Non-current liabilities
Equity capital

Net assets
Equity ratio

15

△1.3％

△0.7％

+1.6％

+1.2％

+1.2％
-

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of the
Fiscal Year Ending March 31, 2023

Non-consolidated Results Highlights

16

Copyright © Digital Arts Inc.

Summary of Non-consolidated Results
FY March 2022
1Q

FY March 2023
1Q

Contracts

1,715

1,926

+12.3%Net sales

1,655

2,065

+24.8%

9,000

Cost of sales

385

520

+35.1%

2,150

Gross profit

1,269

1,544

+21.7%

6,850

Selling, general andadministrative expenses

539

556

＋3.2%

2,250

Operating profit

730

988

+35.3%

4,600

44.1％

47.9％

-

51.1%

Ordinary profit

733

994

+35.6%

4,600

Profit506

687+35.6%

3,200(Million yen)

Operating margin

Change YoY

FY March 2023 FullYear Forecast-* Financial Forecast is the non-consolidated financial forecast announced on May 10, 2022.

17

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First
Quarter of the Fiscal Year Ending March 31, 2023

By Market

18

Copyright © Digital Arts Inc.

Consolidated Contract Amount by Market
Trend in Consolidated Contract
Amount by Market
2,246(Million yen)(+13.5%)

1,979
114

113

Consumer

910

Public

△1.0%

865

1,000

+5.3%

+22.3%

1,223

FY Mar. 2022

FY Mar. 2023

1Q

1Q

Enterprise• In the enterprise sector market, the contract
amount was up 222 million yen or 22.3%
due to increased orders received resulting
from additional functions of the i-FILTER and
m-FILTER series, new deals that the Groupwon by implementing a strategy to expand
sales to specific targets and the growth of
DAC.
• In the public sector market, the contract
amount was up 45 million yen, or 5.3%, due
to an increase in projects for public agencies
and local governments.

19

Copyright © Digital Arts Inc.

Consolidated Net sales by Market
Trend in Consolidated Net Sales by Market
2,386(Million yen)(+24.3%)

1,919

105

Consumer

1,017

Public•In the enterprise sector market, net sales
r o s e 1 9 5 m i l l i on y e n o r 1 8 . 3 % d u e t oincreased orders received resulting from theadditional functions of i-FILTER and m-FILTER
series, new deals that the Group won byimplementing a strategy to expand sales tospecific targets and the growth of DAC.

•In the public sector market, net sales were up
279 million yen, or 37.8%, reflecting an
increase in projects for public agencies andlocal governments, in addition to posted salesof GIGA School Concept projects that lasted
before the previous fiscal year.

△7.1%

113
+37.8%

738

1,067+18.3%

1,262

FY Mar. 2022

FY Mar. 2023

1Q

1Q

Enterprise

20

Copyright © Digital Arts Inc.

Trend in Consolidated Net Sales by Market(Million yen)

2,386

Net sales for the first quarters reached a record high, bolstered by

105

Consumerstrong performances in the enterprise sector and public sector markets.
1,919

113

1,413
1,158

92

1,217

1,249

120

140

408

383

916
803
570

73
170

326

650

673

101

85

216
331

89

256

89

424

296
1,067

380

530

640

688

Public

738

451

207
456

115

1,017

725

1,262

847

EnterpriseFY Mar. 2013 FY Mar. 2014 FY Mar. 2015 FY Mar. 2016 FY Mar. 2017 FY Mar. 2018 FY Mar. 2019 FY Mar. 2020 FY Mar. 2021 FY Mar. 2022 FY Mar. 2023
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q
1Q

21

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Net Sales by Market
Net sales for the first quarters reached a record high, bolstered by(Million yen)strong performances in the enterprise sector and public sector markets.
2,632
115

2,134

2,074
109

1,687
1,514
1,249
140

114

1,376

1,500
100

90

587

383

426
515

725

813

770

1Q

2Q

3Q

FY March 2020

975

4Q

1,413
115

104

103

1,919
113

1,649

2,386

116

105

Consumer

1,020

1,017

Public

1,227

1,262

4Q

1Q

98

1,313

785

974

738
597

2,364

574

451

847

1Q

985

971

2Q

3Q

1,179

4Q

FY March 2021

22

1,067

1Q

1,204

2Q

1,060

3Q

FY March 2022

EnterpriseFY March 2023
Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First
Quarter of the Fiscal Year Ending March 31, 2023

Enterprise Sector

23

Copyright © Digital Arts Inc.

Net Sales in Enterprise Sector Market by Product
Trend in Net Sales in Enterprise
Sector Market by Producti-FILTER series

m-FILTER series

FinalCode(Million yen)
DAC

other

Functions were added to products and cooperation
with agencies were strengthened in response to more
frequent, diverse cyber attacks.

1,262(+18.3%)

3

1,067
1

+21.0%

263
46
187

569

63

+7.6%

Sales of the i-FILTER series remained strong, rising
43 million yen, 7.6%, in response to growing
corporate demand for cybersecurity.

•

Sales of the m-FILTER series were strong (up 76
million yen or 41.1%), owing to rising demand
for mail security and PPAP problem-solving.

•

DAC made good progress acquiring new clientsand achieved substantial sales growth (up 55
million yen or 21.0%), reflecting growing DX
needs and demand for security measuresamong enterprises.

318+35.6%+41.1%

•

263

613

FY Mar. 2022

FY March 2023

1Q

1Q

24

Copyright © Digital Arts Inc.

Net Sales Growth and Expansion of DAC on a Non-consolidated Basis

Security consulting sales*

Number of consultants(Persons)(Million yen)

205

80
65

•

IT strategy consulting sales*(Million yen)

90

131

End of FY March

End of 1Q FY

2022March 2022

DAC actively hired talent, focusing
on those from leading consulting
firms and leading systems
integrators.

FY Mar. 2022 1Q FY March 2023 1Q

FY Mar. 2022 1Q FY Mar. 2023 1Q•

Offering comprehensive services
including security checkups andanalysis, proposals of measuresand solutions for raising thesecurity level and support for
implementation

91•

DAC proposed initiatives andsolutions to promote DX atcustomers in consideration of
security and provided
comprehensive consulting services,
including implementation support.

*: DAC's non-consolidated net sales

25

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of
the Fiscal Year Ending March 31, 2023

Public Sector

26

Copyright © Digital Arts Inc.

Net Sales of Public Sector Market by Product
Trend in Net Sales of Public Sector
Market by Producti-FILTER series

m-FILTER series

FinalCode

Other

1,017

(+37.8%)

738
1

14

+42.1%(Million yen)•In addition to posted sales of GIGA School

21

Concept projects that lasted from the previous

183

fiscal year, contracts gained from public agencies

and local governments were higher than+140.8%

forecasted and sales of the i-FILTER series

76

achieved a huge growth.(+166 million yen/+25.8%)813
646+25.8%FY Mar. 2022 1Q•

Brisk orders were received from local
governments and sales of the m-FILTER series
leaped (up 107 million yen or 140.8%).

FY Mar. 2023 1Q

27Copyright © Digital Arts Inc.

GIGA School Concept
GIGA School Status*1
Introduction of charged filtering

Share of charged filtering introduced

Not yetintroduced,etc.
26%Competitors(Less than 10 companies) i-FILTER
48%

52%

Charged filtering
already introduced

74%•

The proportion of Boards of Education whichhave adopted paid-for filtering increased from73% at the end of the previous fiscal year to 74%.

•

i-FILTER's share grew from 51% at the end of theprevious fiscal year to 52%.

•

Contracts increased from 6.9 billion yen at theend of the previous fiscal year to 7.3 billion yen.

*1：According to our survey of 1,741boards of education (Jun 2022）

28

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of
the Fiscal Year Ending March 31, 2023

Consumer Sector

29

Copyright © Digital Arts Inc.

Net Sales of Consumer Sector Market by Product

Trend in Net Sales of Consumer
Sector Market by Product(Million yen)

• In products for computers, sales ofmultiple-year package products andi-FILTER® for Multi-Device, which
can be available on multiple
terminals, were sluggish.

For mobile terminals, otherFor computers

105

113

(△6.9%)

56△5.4%• Sales of products for mobile terminals
declined slightly due to a decrease inrevenue from contract development for
carriers, although the number of users
increased.

53

△8.8%

57

52

FY Mar. 2022 1Q

FY Mar. 2022 2Q

30

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of the
Fiscal Year Ending March 31, 2023

Full-Year Financial Forecast for
Fiscal Year Ending March 31, 2023

31

Copyright © Digital Arts Inc.

Forecasts for Fiscal Year Ending March 31, 2023 (Consolidated)(Million yen)

FY March 2022
Full-Year Results

FY March 2023
Full-Year Forecasts

Change% Change

Net sales

9,051

10,500＋1,448＋16.0 %

Cost of goods sold

2,676

3,350

＋673

＋25.2 %

Gross profit

6,374

7,150

＋775

＋12.2 %

70.4％

68.1％

-

-

Selling, general andadministrative expenses

2,248

2,450

＋201

＋9.0 %

Operating profit

4,126

4,700

＋573

＋13.9 %

Operating margin

45.6%

44.8％

-

Ordinary profit

4,135

4,700

＋564

＋13.7 %

Profit attributable to owners ofparent

2,900

3,250

＋349

＋12.0 %

Gross profit

margin-※ Financial Forecast is the consolidated financial forecast announced on May 10, 2022.

32

Copyright © Digital Arts Inc.

Forecasts for Fiscal Year Ending March 31, 2023 (Non-consolidated)

FY March 2022
Full-Year Results

FY March 2023
Full-Year Forecasts

Net sales

8,003

9,000

＋996

＋12.4 %

Cost of goods sold

1,821

2,150

＋328

＋18.0 %

Gross profit

6,182

6,850

＋667

＋10.8 %

Gross profit margin

77.2％

76.1％

-

-

Selling, general andadministrative expenses

2,141

2,250

＋108

＋5.1 %

Operating profit

4,040

4,600

＋559

＋13.8 %

Operating margin

50.5％

51.1％

-

-

Ordinary profit

4,052

4,600

＋547

＋13.5 %

Profit

2,832

3,200

＋367

＋13.0 %

(Million yen)

Change% Change* Financial Forecast is the non-consolidated financial forecast announced on May 10, 2022.

33

Copyright © Digital Arts Inc.

Status of Consolidated Net Sales
Consolidated Forecast(Million yen）•

Net sales that will be carried over to and posted for the
fiscal year in question will increase given an increase in thenumber of contracts acquired in previous fiscal years inconnection with the GIGA School Concept in the public
sector market.

•

New contracts of DAJ are expected to amount to 8,400
million yen after measures to expand sales of new
functions and strategic sales measures for the enterprise
sector market and the winning of projects to improve theresilience of municipal information systems in the public
sector market.

•

As in the previous fiscal year, DAC will increase the numberof consultants and is expected to continue growing throughthe acquisition of new clients.

*1: Sales recorded from the order backlog of contracts
acquired in previous fiscal years*2: Sales deferred to subsequent fiscal years (order backlog)*3: DAJ = Digital Arts Inc.
*4: DAC = Digital Arts Consulting Inc.

34

Copyright © Digital Arts Inc.

Status of Consolidated Net Sales
Forecast by Market

10,500(Million yen）(+16.0%)

9,051

+1.2%

450

Consumer

4,550

Public• In response to corporate needs for total security solutions, wewill enhance the product lineup and improve links with othercompanies' products in order to attract new clients.

444+12.4%•

We will increase the number of DAC staff to achieve growth byacquiring new customers.

•

Net sales that will be carried over to and posted for the fiscal
year in question will increase given an increase in the numberof contracts acquired in previous fiscal years in connection
with the GIGA School Concept in the public sector market.

•

Sales growth will be attained by winning projects for thefurther improvement of the resilience of municipal information
systems and by expanding our market share in connection
with the GIGA School Concept.

4,046

4,559

5,500

+20.6%

Results for FY March
2022

Enterprise

Forecast for FY March
2023

35

Copyright © Digital Arts Inc.

Consolidated Cost of Goods Sold and Selling,
General and Administrative Expenses(Million yen)

Results for FY
March 2022

Forecast for FY
March 2023

ChangeYoY

Main Factors for Change

2,676

3,350

+25.2%

1,440

1,600

+11.1%

DAC will increase the number of consultants.

Depreciation

844

950

+12.4%

Increase in depreciation of software for cloud
products.

Communication
expenses

719

1,000

+39.1%

Cloud server expenses will rise as a result ofsales expansion of cloud products.

Other

666

800

+20.1％

Increase in outsourcing of development△994△1,000

-0.5%

2,248

2,450

+9.0%

Personnel expenses

1,296

1,270

-2.0%

Advertising expenses

239

290

+20.9%

Advertising in newspapers and other media will
increase.

Other

712

890

+25.0%

Hiring expenses will increase for increasing
consulting personnel at DAC.

Cost of goods sold

Labor

Transfer to other accounts
Selling, general andadministrative expenses

36

Copyright © Digital Arts Inc.

Status of Consolidated Cost of Goods Sold
Labor costs are expected to rise because DAC will increase the number of consultants.
Communication expenses are expected to increase as a result of sales expansion of cloud products.
(Million yen)

Status of Consolidated Cost of goods soldFY March 2022
results

Labor

Depreciation

Communicatiov
n expenses

37

Other

Transfer toother accounts

FY March 2023
forecast

Copyright © Digital Arts Inc.

Status of Consolidated Selling, General and Administrative Expenses

Recruiting expenses (in the "other" category) will increase forincreasing consulting personnel at DAC.
Status of Consolidated Selling, General and
Administrative Expenses(Million yen)

FY March
2022
results

Personnel
expenses

Advertisingexpenses

38

Other

FY March2023
forecast
Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of the
Fiscal Year Ending March 31, 2023

FY03/23 Initiatives

39

Copyright © Digital Arts Inc.

Current Circumstances Surrounding Cyber Security Measures

Mounting needs forcomprehensive security(2) Measures against malware infections

Diversification of cloud services and the
spread of remote working and homelearning meant an increase in ICT assetsthat need to be protected and expansion of
the domain of security threats.

Malware threats are intensifying due todiversification and sophistication of cyberattacks
from rampant ransomware, Emotet and othermalware.

(1)(3)

Strengthening security measuresfor public institutions(4)

Enhancing security measures for GIGA
School devices

Not only is there demand from those who have yet
to introduce filtering but also demand forswitching from free filtering and DNS filtering tohigh performance filtering software for protecting
schoolchildren.

• Local governments seek security cloud andgreater security resilience.
• Medical institutions have growing needs forcyber security measures.

40

Copyright © Digital Arts Inc.

(1) Mounting Needs for Comprehensive Security
Diversification of cloud services and the spread of remote working and homelearning meant an increase in ICT assets that need to be protected andexpansion of the domain of security threats.

Security solutions providing broader security
measures than ever before are now required.

External cloud service

Home

Perimeter
defenseSatellite
officeConcentration ofcommunication loads
Open server

Open serverInternal server

VPN system

External

41

Copyright © Digital Arts Inc.

(1) Mounting Needs for Comprehensive Security
To meet the needs for comprehensive security, roll out Digital Arts' original nextgeneration secure web gateways (SWGs) featuring enhanced functions of the existing
URL filtering software (i-FILTER) and a wide range of additional security solutions.
(Note) Anti-Virus ＆ Sandbox (including on-premise solutions) have been launched.
Schematic of functions of next-generation SWGs

Internet

Applications

Additional functions
Web➢ Visualizing the state of useof cloud services by users

URL filtering

SecureWeb
Gateway

Enhancementof features

CASB
Antivirus
Sandbox
DLP

Cloud FW

➢ Performing checks onviruses and behaviors incommunication➢ Identifying confidential
information to stop it fromflowing out of the office➢ Controlling the traffic of all
cloud applications

Computers andother devices
inside and outside
the office42

Copyright © Digital Arts Inc.

(2) Measures against Malware Infections
Financial loss from ransomware and confidential information theft bytargeted attacks rank high among the 10 major security threats withthe diversification and sophistication of cyberattacks.
Rank* The ordinal number in parentheses ( ) represents
the rank in the previous year.

Ten major security threats 2022 for organizations

1st (1st)

Financial loss by ransomware

2nd (2nd)

Confidential information theft by targeted attacks

3rd (4th)

Attacks exploiting supply chain weaknesses

4th (3rd)

Attacks targeting teleworking and other new normal workstyles

5th (6th)

Information leakage through internal fraudulent acts

6th (10th)

Increase in abuse after the publication of measures against vulnerabilities

7th (NEW)

Attacks before release of patches (zero-day attacks)

8th(5th)Financial loss by business e-mail compromise

9th (7th)

Suspension of business due to unexpected IT infrastructure failure

10th (9th)Careless information leakage/* Source: Information-technology Promotion Agency, Japan (IPA): 10 Major Security Threats 2022

https://www.ipa.go.jp/security/vuln/10threats2022.html

43

Copyright © Digital Arts Inc.

(2) Measures against Malware Infections
m-FILTER and i-FILTER provide protection against infection through e-mail for
Digital Arts products.
FinalCode and i-FILTER prevent information theft even in the case of intrusion by
any means other than e-mail.
The status of zero reports on infection damage is continued.*1

Measures against infection
Measures against
infection from email fileattachments

Block or removal ofmacrosMeasures against information theft

Measures against
infection due toconnection to any URL
on emailBlocking connection
to malicious orphishing websites

Measures against
unauthorizedtaking out of files

Automatic encryption
to block information
theft

Measures against
taking out of files
onlineControl over online
uploadingAlso supporting
investigation andanalysis ofunauthorized uploads

Part of the i-FILTER functions was released on May 10 as an option of the
URL category linkage of m-FILTER.
*1: The number of reports on damage due to malware infection from users of i-FILTER Ver. 10, m-FILTER Ver. 5, i-FILTER@Cloud and m-FILTER@Cloud as of Jun 2022 (Source: Digital Arts)

44

Copyright © Digital Arts Inc.

(3) Strengthening Security Measures for Public Institutions
Security cloud projects for prefectural governments generally proceed as scheduled. Procurement
for improving the resilience for municipal governments is making progress following completion of
procurement for prefectural governments and it is expected to end in FY2023.

Schedule for public-sector projects
TargetGovernment

FY2016

Enhancementof resilience ofmunicipalities* Government
cloud also needs
to be considered.

FY2018FY2019FY2020Introductionof
ISMAP

Centralministries andagencies

Security
cloud (SC)* Government
cloud also needs
to be considered.

FY2017

Prefectures
Municipalities

Revisionofprocurement
guidelines

FY2022

FY2023

FY2024FY2025

Budgeting, bidding, and procurement for eachproject

Transferbudget: 2,930
million yen

Budget: 7,180 million yen
Prefectures

FY2021

BudgetingRevision of
procu
reme
nt
guide
lines

Bidding/procureBudgeting for eachmunicipality

Budgeting
Bidding/procureBudget: 16,440 million yen

Prepared using information from the Ministry of Internal Affairs and Communications (MIC) as a reference. https://www.soumu.go.jp/main_content/000729600.pdf

45

Copyright © Digital Arts Inc.

(3) Strengthening Security Measures for Public Institutions
All solutions shown in the outline of countermeasures for municipal
information systems are possible using combinations of Digital Arts products.
We won i-FILTER and m-FILTER projects for public institutions.
Overview of Solutions for Municipal Information Systems
Outline of countermeasures
Review of "three layers of protection"(α model protection and above)

Even with the β model for separation of the threelayers, a secure environment can be realized.
Security monitoring(For reference) Illustration of introduction of Digital Arts
solutions in environments with separation of the threelayers (α model, β model and β’ model)
Municip
alities

File Security

Remote access security(protection against malware, etc.)

Measures for shift away from PPAP
(process of sending an encrypted file (withpassword) attachment in an email and thensending the password to unzip the file in asecond email)File encryption

Realizes safe operations through automatic file encryption
Deletes data through file tracking and leaves deletion
history
Prevents leaks from HDD through authentication
mechanism

Terminal
System using National Identification
Number (My Number)Anti SpamBlock harmful information through web access controls
Flexibly creates filtering tools based on policy settings
Performs log monitoring through integration with SIEM
product

Blocks dangerous e-mails through e-mail filtering
Blocks malware infections through sanitization
Prevents inadvertent mistakes and leaks throughprotection against errors when sending out emails

Terminal

Original
is sent

Only thebody of theemail issent

Terminal
Terminal

LGWAN-connected
systemMunicipal information security
cloud (prefectural government
offices)Cannot be viewed

Terminal

Terminal

Integration
with municipal
AD enables
LDAP
authentication

Internet-connected system

Even if an important file is leaked outside, it cannot be viewed.

Anti-Virus & Sandbox functions areprovided as options from May 10.
46

Copyright © Digital Arts Inc.

(3) Strengthening Security Measures for Public Institutions
A number of cases of damage from cyber attacks sustained by medical institutions have occurred inrecent years. In light of that, the security guidelines for the medical industry will be strengthened.
It is possible to provide large medical institutions with proposals similar to network separation forenhancing resilience of municipal information systems.
There is great potential for the adoption of Digital Arts products.
Structure of network separation at major medical institutions

Connection withexternal service
operators*

Hospital information
system (HIS) networks
Electronic health record
systems
Medical accounting systems
Department systems (forimages, examinations andothers)Medical equipment,
service terminals and others

Connection withexternal parties
through sharing of
medical information

Internet connection

Networks for separate
applications

Information system network
Back office systems
Personnel management,
accounting, logistics and others
Medical equipment and service
terminals
Terminals for researchers(for academic conferences) (fordatabases and others)

Reference terminals

•
•
•
•

Connection with regional healthcare
networks (medical information, etc.)
Connection with testing institutions
Connection with home care andnursing care facilities
Remote medical care and others* Cloud service operators, maintenance andmanagement service providers and others* Source: Ministry of Health, Labour and Welfare: Information Security Training Material (for medical professionals)
https://www.mhlw.go.jp/content/10808000/000761105.pdf

47

Copyright © Digital Arts Inc.

(4) Enhancing Security Measures for GIGA School Devices
Some boards of education that introduced free DNS filtering solutions are shifting to iFILTER and other paid filtering solutions for purposes of strengthening security andreducing clerical workloads.
Introduction of filtering by Boards of Education*1
March 2022

Jun 2022

35%

33%

Not yetintroduced
未導入

未導入
Not yetintroduced

6%5%
無償ﾌｨﾙﾀﾘﾝｸﾞFreefiltering

無償ﾌｨﾙﾀﾘﾝｸﾞFreefiltering

14%

15%

DNS
filtering
DNSﾌｨﾙﾀﾘﾝｸﾞ
14%

DNS
filtering
DNSﾌｨﾙﾀﾘﾝｸﾞ

有償ﾌｨﾙﾀﾘﾝｸﾞ
Pay filtering

14%

introduced
導入済み
79％

有償ﾌｨﾙﾀﾘﾝｸﾞ
Payfiltering
introduced
導入済み
81%

*1: Based on interviews with 651 school boards responsible for more than 3,000 pupils and students (According to our research)48

Copyright © Digital Arts Inc.

Anti-Virus & Sandbox Launched
We have started to provide Anti-Virus & Sandbox for i-FILTER and
m-FILTER to meet demand for total security solutions.

The Nikkei newspaper：
Released on June 30, 2022

The Nikkei newspaper：
Released on May 24, 2022

We have raised brand recognition and won deals using the media,
particularly The Nikkei newspaper, and online seminars.
49

Copyright © Digital Arts Inc.

Penetration of "White Operation"
Realizing safe office IT environments
protected through "White Operation"

Trend in i-FILTER v10 and m-FILTER
v5 Licenses Used

12,000(Thousand licenses)

10,54910,022
7,958

4,665
The number of licenses are increasing steadily

3,604

following the launch of Anti-Virus & Sandbox.
We will broaden the product lineup and step up
collaboration with other companies to further
March 2019

March 2020

March 2021

March 2022

March 2023

March 2024

50

encourage the take up of White Operation.

Copyright © Digital Arts Inc.

Acceleration of Synergies within the GroupWe release a one-stop service encompassing sales, construction and operation of Digital Arts products.
The use of D-Alert paves the way for services from the detection of incidents to recovery.

Consulting services＆“QuickStart” services

Clients in the enterprise
sector market✓ Propose Digital Arts products to consulting clients.

“White operation" clients
Expansion of enterprise
sector market✓ Achieve an early introduction of Digital Arts
products in optimal settings based on the Group's
expertise.

“D Alert QuickIR option”

Website tampering
Incident detection enterprise(D Alert feature）*1✓ Provision of charged services dealing
with everything from the detection ofincident to recovery and prevention.
Everything fromdetection to recovery
dealt with within theGroup

InvestigationActionRecovery

Prevention*1: D-Alert has issued 1,131 reports for the current fiscal year. It notifies customers on a real-time basis tourge them to take security measures.

51

Copyright © Digital Arts Inc.

Acceleration of Synergies within the Group
Expand the scope of value provided and the level of profit through DAC service, ensure
continuous contact with E/U as the Group, and use it for product sales growth.
Security advisory

D Alert QuickIR option✓

The incident response service originated from “detection
with D Alert”✓

It covers the investigation of terminals and devices withwhich Digital Arts products are used, initial response andidentification of causes.

✓

Identify current issues through security
assessment.

✓

Offer proposals on measures for improving
security levels and support decision-making.

✓

Propose and sell security products best suited
to customers' environments.

Consulting
Sale

Operation andmaintenanceOperation and maintenance service✓

Buildingand setting✓This service offers operation and maintenanceconcerning Digital Arts products.

To be provided

QuickStart service: Started providing: Scheduled for release
in FY2022

52

Service for installing security at a level ofrecommended settings in a form appropriate
for customer environments
Started providing

To be provided

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Quarter of the
Fiscal Year Ending March 31, 2022

Return to Shareholders for Fiscal
Year Ending March 31, 2023

53

Copyright © Digital Arts Inc.

Return to Shareholders for Fiscal Year Ending March 31, 2023

We are planning to pay dividends as follows to return a portion of our earnings to our shareholders.
Target payout ratio for fiscal year ending March 31, 2023: 32.4%
Annual dividends of surplus forecasted for fiscal year ending March 31, 2023: 75.00 yen per share
We expect to increase the annual dividend by 5.00 yen per share.

Dividend (in yen) per share
Consolidated
payout ratio
2Q-endFY March 2022

FY March 2023
(forecast)Year-end

Annual

30.00

40.00

70.00

33.9％

35.00

40.00

75.00

32.4％

54

Copyright © Digital Arts Inc.

Notes on Descriptions

Among the descriptions of plans, strategies and financial forecasts in this presentation material, those thatare not historical facts are forward-looking statements.
They reflect judgments made by the management of Digital Arts Inc. on the basis of information currently

available to it. They may be subject to considerable change depending on changes in the environment andother factors, and the Company does not in any way guarantee the achievement of the projections.
Digital Arts Inc. will disclose any significant changes that occur in the future as appropriate.
With some exceptions, the basic figures in this presentation are rounded down to the nearest million yen.

• デジタルアーツ、DIGITAL ARTS、i-FILTER、i-FILTER@Cloud Anti-Virus & Sandbox 、D-SPA、White Web、m-FILTER、
m-FILTER MailFilter、m-FILTER Archive、m-FILTER Anti-Spam、m-FILTER Anti-Virus & Sandbox、m-FILTER@Cloud Anti-Virus & Sandbox、
FinalCode、i-フィルター、DigitalArts@Cloud、Desk@Cloud、Desk,Dアラート,and other logos and icons related to Digital Arts Inc. and its
products are trademarks or registered trademarks of Digital Arts Inc.
• Apart from this, the names of companies and products stated herein are trademarks or registered trademarks of their respective companies.

55

Copyright © Digital Arts Inc.

-For internet convenience, safety and security -Copyright © 2015 Digital Arts Inc.