Digital Garage, Inc.

1Q of FYE March 31, 2018 Financial Report2017.8.10

Investment Highlights

YoY * sales grew by 13%, operating income grew by 13%, income before income taxes
decreased by 42% in FY18.3 1Q
Strong MT and FT segments drove both of sales and operating income. Ordinary income decreased by 37% YoY
due to change of fiscal term last year
Income before income taxes decreased by 42% due to investment profit on equity method by change of fiscal
term last year and decline of extraordinary income
Progression rate for forecast: sales 22% / income before income taxes 23% --- Exceeding the budget target

Consolidated sales(in B JPY)

11.5

Consolidated income before income taxes(+13%)
13.1

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1Q
FY15.6

FY16.6

FY17.3

FY18.3

 Sales marked 13.1 B JPY (+13% YoY), which is record-highquarterly results
 MT and FT segments secured doubles digits growth stably,and be the engine of company growth(in B JPY)(-42%)
3.1(+64%)
1.8
1.1

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1Q
FY15.6

FY16.6

FY17.3

FY18.3

 Recovered: 1.8 B JPY, increased 64% compared to FY17.3 3Q
 No burden of impairment loss of FY17.3, and contributed tothe improvement of income before income taxes
 FY17.3 1Q included investment profit on equity method of
Kakaku.com, Inc. for 6 months (FY17.3 1Q 1.2B JPY → FY18.3 1Q 0.6 B JPY)

Note:* Compared FY17.3 1Q with FY18.3 1Q as follows due to change of fiscal term last year
Companies whose fiscal term was March ending prior to the change : FY17.3 1Q (Apr. – Sep.) vs FY18.3 3Q (Apr. – Jun.)
Companies which changed fiscal term to March ending: FY17.3 1Q (Jul. – Sep.) vs FY18.3 3Q (Apr. – Jun.)

Copyright © 2017 Digital Garage, Inc. All Rights Reserved2

Segment Highlights(1/2)
New Mid-term Plan
TargetSegment HighlightMarketingTechnology【Income before income taxes】(JPY in 100 Millions)

3.6(+26%)
4.6

MT Strong performance-based ads
Securing double digits growthin sales and profits
Sales

1Q

Financial
Technology

2Q 3Q 4Q 1Q

2Q 3Q 4Q 1Q

FY15.6

FY16.6

2Q 3Q

FY17.3【Income before income taxes】(JPY in 100 Millions)

4.6

1Q
FY18.3(+23%)
5.7

FT

7.8 B JPY +19%

Income before income tax

income tax

0.46 B JPY +26%

Income before

340.5 B JPY +10%
2Q 3Q 4Q 1Q

2Q 3Q 4Q 1Q

FY15.6

FY16.6

2Q 3Q

FY17.3

1Q
FY18.3

CAGR +15%

 Continued growth exceeded
the market
Securing double digits growthin sales and profit
Transaction volume

1Q

Income before

Income before income tax

0.57 B JPY

income tax

CAGR +15%+23%
Copyright © 2017 Digital Garage, Inc. All Rights Reserved3Segment Highlights(2/2)
Segment Highlight

New Mid-term Plan
TargetInvestment and incubation :Incubation
TechnologyIT Continuing active growth investment
 Will assign an influential investor in
Silicon Valley as a Chief Investment
 Investment balance
Officer in September, as part of
12.5 B JPY
formulating a new structure of investment
business

ROI 2.5 x

 Strengthen investment structure in Japan,
US and Asia. Start the review of portfolio
strategicallyLong Term
Incubation

LTILong term business profit: DK Media, JV with Kodansya, opened
compilation media “HOLICS”
 DG Life Design, lifestyle business, started
officially Investment balance
3.3 B JPY

ROI 2.5 x

 Formulating mid-long term incubation
structure of blue-chip investing companies
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

4Progress in “DG Lab”
Driven by R&D and fund investment focusing on five key fields, fully startdevelopment of key technologies that can be the center of next-gen business.
Will start proving feasibility test of block chain related project in fall of 2017.
BLOCK
CHAIN

Driving R&D projects utilizing blockchain
Start in full swing of collaboration with Blockstream,
a top tier company of blockchain. Co-developing
products such as community currency with Kakaku
and Credit Saison Co.,Ltd. based on blockchain
technology. Will start proving feasibility test ofcommunity currency in fall of 2017.

AI

VR/AR

Collaborating with Wevr, a company creates highquality VR contents. Tried field test of live streaming ofmusic performance in “4K360°” format in conjunction
with partner companies.

BIOTECH

Establishing foundation for Bio Incubation Center
Aiming for establishing ecosystem to incubate biotech related
startups. Business alliance with PureTech Health, a company whichworks on advanced incubation business in biotech.

Developing services collaborating with data science
Develop services and products based on AI analysis of various data
provided by partner companies. Web action data by Kakaku andadvertising data by Dentsu group will be utilized. Develop interactive
agent prototype which can search on a restaurant review site “Tabelog”,
and plan to offer it as open platform.

Collaborating with studio works for high
新たな顧客体験をもたらすサービスを実現へ
quality VR contents

SECURITY

Aiming for novel security technology
Studying development of novel security technology for protecting
data which increase significantly by penetration of smartphone and
IoT.

Starting investment on prospective companies of AI and Biotech
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

5

“DG Lab” Event
Industry-leading conference event～ Conference offered advanced technology trend/ workshop for developers ～Date：July 25-26, 2017
Venue： Tokyo, Japan
URL: http://ncc.garage.co.jp/
Hosted by Joi Ito, globally acclaimed leading researchers, entrepreneurs, andexperts of the field came together to discuss and debate on these cuttingedge trend. Starting from 2005, and this was the fifteenth edition.

Day1： Intersections Between IT and Biotechnology and the
Future They Foretell
Day2： Real Power and Evolution of Blockchain
Digest video：https://youtu.be/ZpKqUUitPQ4
Approx. 500 participants on each day. Satisfied level: 89%

Date：July 31 - August 2, 2017
Venue：Digital Garage HQ (Tokyo)
URL: https://bc-2.jp/
Training fields for engineers where can experience
implementation of Blockchain technology by hands-on
for 3days.

Day1：Elements and Assets
Day2：”Layer2” Technology
Day3：Smart Contract
Joined approx. 100 engineers
Satisfied level: 80%

Will continue the activities which enhance the participants and industry by
sharing the moment with leading parsons
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

6Group Financial Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

7

FY18.3 1Q Consolidated P/L Summary

FY17.3
1Q Act

FY18.3
1Q Act

(7-9)

(4-6)

11,558Operating income
Non-operating income

JPY in Millions

YoY

FY18.3%

Amount13,103+13.4+1,544

412

464

+12.6

+51

1,555

748

-51.9

-807

1,262

615

-51.2

-646

Non-operating expenses

197

101

-48.5

-95

Foreign exchange loss

67

9

-86.3

-58

Ordinary income

1,770

1,111

-37.3

-659

Extraordinary income

1,380

719

-47.9

-661

1,368

717

-47.6

-650

3,137

1,830

-41.7

-1,307

456

568

+24.5

+112

2,678

1,267

-52.7

-1,411

Net sales

Investment profit on equity method

Gain on sales of investments in securities

Income before income taxes
Income taxes
Net income attributable to owners of parent

Full Year

1Q

Forecast

Progress

58,500

22%

8,000

23%

5,500

23%

Note:* Compared FY17.3 1Q with FY18.3 1Q as follows due to change of fiscal term last year
Companies whose fiscal term was March ending prior to the change : FY17.3 1Q (Apr. – Sep. ) vs FY18.3 3Q (Apr. – Jun.)
Companies which changed fiscal term to March ending: FY17.3 1Q (Jul. – Sep. ) vs FY18.3 3Q (Apr. – Jun.)
Kakaku,com.Inc. is affiliated company for using the equity method, and started to apply IFRS this year. Investment profit onequity method of FY18.3 is based on IFRS treatment, and the figures on FY17.3 has been applied retrospectively.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

8

FY18.3 1Q Consolidated Segment P/L Summary

FY17.3

FY18.3

1Q Act1Q Act

(7-9)

(4-6)

11,558MT Marketing Technology

JPY in Millions

YoY

FY18.3Full Year

1Q

Forecast

Progress+1,54458,50022%+19.1+1,24932,000

24%

4,951

+9.8

+439

20,500

24%

486

337

-30.5

-148

6,000

6%

10

14

+30.7

-

-

-

3,137

1,830

-41.7

-1,3078,000

23%MT Marketing Technology

368

466

+26.3

+97

1,750

27%

FT Financial Technology

468

578

+23.5

+109

2,300

25%

IT Incubation Technology

1,364

-114

-

-1,4783,800-

LTI Long Term Incubation

1,258

554

-56.0

-703

2,500

22%

%

Amount13,103

+13.4

6,550

7,800

FT Financial Technology

4,511

IT Incubation Technology
LTI Long Term Incubation

Net sales

Income before income taxes

Note: Income before income taxes per segment is based on figures prior to elimination or group deduction, etc
MI segment has been changed to LTI segment from FY18.3, by aiming to generate sustainable business profit in mid-long term.
Some businesses in IT segment have transferred to LTI, therefore figures on FY17.3 updated with the current category.

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

9

FY18.3 1Q Consolidated B/S Summary
JPY in Million

FY17.3

FY18.3 1Q

Difference

Reason for change / Remarks

Current assets

59,62459,875+250

Cash and deposits

23,02920,422-2,607

New investments, Payment of corporate tax and dividends

Receivables

15,422

16,971+1,548

Money held in trust

2,264

3,883

+1,618

11,856

12,411+554

Sales of investment securities, Expansion of FT business
Expansion of FT business
New investments, Mark-to-market, etc

Fixed assets

32,06130,316-1,745Investment securities

18,357

16,584-1,773

Goodwill

5,411

5,293

-117

Total assets

91,686

90,191-1,494Current liabilities

38,81534,837-3,978Deposits

25,12724,985-141

Short-term borrowing

6,937

4,137

-2,800

Fixed liabilities

18,49920,607+2,107Long-term borrowing

17,207

19,526+2,319Total liabilities

57,31555,444-1,870Net assets

34,371

34,746+375

Shareholders' equity

31,63331,961+327

Common stock

7,437

7,438

+1

Capital surplus

2,946

2,947

+1

Retained earnings

21,30021,626+325

Accumulated other comprehensive income

1,956

1,967

+11

Unrealized gains on securities

644

641

-2

91,686

90,191-1,494

Operational investment securities

Liabilities / Net assets

Sales of investment securities, Increased investment profit onequity method

Short-term borrowings shifted to long-term as long-term interest
rates get lowered

Increased net profit

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

10Segment Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

11

MT Segment Highlights
Achieved record-high sales

Performance-based ads grew steadily and penetrates in all businesses
Net Sales(JPY in Million)

Operating Income(+19%)

8,000(JPY in Million)

7,800

6,550

(JPY in 100 Million)(+16%)

500

429(+23%)

60

51

369

400

6,000

Sales from Performance-based Ads

19

14

40

300

63

4,000

22

15

200
20
2,000

100

0

0

1Q

2Q

3Q

FY16.64Q

1Q

2Q

FY17.3

3Q

1Q

FY18.3

0

1Q

2Q

3Q

FY16.64Q

1Q

2Q

FY17.3

3Q

1Q

1Q

2Q

Due to increased sales andimprovement gross margin mix,
increased employment cost andfixed cost were absorbed.

3Q

FY16.6

FY18.3Financial

Stable growth gaining traction in
performance-based ads.
Achieved record high sales.

21

21
4Q

1Q

Cosmetics/Others

2Q

FY17.3

3Q

1Q

FY18.3

Smartphone/app

Continued growth not only in financial
business but also in all businesses
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

12

FT Segment Highlights
Achieved record-high sales and operating income
Transaction expanded to more than 340 B JPY
Transaction Record(JPY in 100 Million)(+10%)
3,405
3,091

4,000

Operating Income

Net Sales
営業利益

3,000

(+10%)
4,951
4,511(JPY in Million)
5,000(+20%)(JPY in Million)
600

487

500

4,000

582

400
3,000
300

2,000
2,000

200
1,000

1,000

100

0

0

0

1Q

2Q

3Q

FY16.64Q

1Q

2Q

FY17.3

3Q

1Q

FY18.3

CtoC field has been strong continuously
Exceed EC market growth 9.9％

1Q

2Q

3Q

FY16.64Q

1Q

2Q

FY17.3

3Q

1Q

FY18.3Growth of existing client andacquisition of major EC companies arecontributed

1Q

2Q

3Q

FY16.64Q

1Q

2Q

FY17.3

3Q

1Q

FY18.3As transaction record increased,
the marginal profit improved, andachieved record high operating income.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

13

IT Segment Highlights
No burden of impairment loss of FY17.3, income before income taxes improved
0.6 B JPY compared to FY17.3 3Q.

～ Although income before income taxes ended in deficit due to no stock sales in 1Q,
active growth investment has continued ～Income Before Income Taxes
13.7

13.6

(JPY in 100 Million)

1.4

4Q
FY16.6

1Q

2Q
FY17.3

-7.4

-1.1

3Q

1Q
FY18.3

Book Value# ofcompanies

EquityBook Value

134

11.9 B JPY

Domestic

43

1.9 B JPY

Overseas91

9.9 B JPY

Fund

8

0.6 B JPY

Total

142

12.5 B JPY

Note)DG Incubation’s investment balanceMark-to-market as of quarter end for listed stocks. Equity includes convertible note.Book value totals may not match details because of rounding down fractions

Major Portfolio
Blockstream [U.S. /Canada]
Develops sidechain technologies,
parallel blockchains that areinteroperable

Droom [India]
A leading online marketplace for new andsecond-hand automobiles in India

Welby [Japan]
Builds apps forwithchronic
diabetes, cancers

patients
malady,Goodpatch [Japan]
Web development and consulting
service firm

Wevr [U.S.]

Monstar Lab[Japan]

Virtual reality community and VR media
player for aspiring and professional
creatives

Operates Sekai Lab, a global
outsourcing platform that provides a
network of over 10 k engineers in over
15 countries

PureTech Health [U.S.]

Panair [Japan]

A US based company that focuses on
incubation in advanced biotechnology field.
Listed on LSE.

Provides “Odin”, an automated electricity
retail platform that uses cloudcomputing and artificial intelligence.

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

14Topics : Investment in PureTech (USA) and next-generation biotech incubation business

Alliance with PureTech Health and launch incubation business of next-gen.
biotech startups～ Build Japan’s first ecosystem to grow and support biotech companies in the face ofintegration with computer science ～Strategic investment

Business alliance

Alliance points
Ⅰ

Support business developmentof PureTech in JapanⅡ

Provide technical advice andintroduction of investing
companies by PureTech

Ⅲ

JV establishment in digital/
bio/healthcare fields etc

PureTech Health Plc
A US based company (HQ: Boston) that focuses on
incubation in advanced biotechnology field. Listed on LSE.
Major startup companies under PureTech

Treatment for ADHD
by video game

Treatment for weightloss and improve
glycemic control

Treatment forhair loss

Efficient oral
medication

Therapies for
immune by humanmicrobiome

Treatment for
inflammatory disorders

Treatment for
schizophrenia

Music therapy
by AI

Microbial therapy
for children

Voice-based healthassessment

Utilizing know-how fostered through incubation of IT startup companies in the biotech field
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

15Topics : Investment in PureTech (USA) and next-generation biotech incubation businessLeading experts in managements and advisers of PureTech～ From former VP of Major pharmaceutical companies to winners of the Nobel Prize inPhysiology or Medicine ～Daphne Zohar
Co-Founder & CEO

Marjorie Scardino
Senior Independent Director

Recognized as a top leader and innovatorin biotechnology by various sources

Served as executives in Economist andPearson. Currently being the chairmanof MacArthur Foundation.

Robert Langer, ScD
Co-Founder, Non-Executive Director
Scientific Advisory Board Member

Atul Pande, MD
Chief Medical Officer

Honorable biomedical engineeringresearcher and Institute Professor at MIT.
Known as “one of the most cited individuals
in history”.

Ben Shapiro, MD
Co-Founder, Non-Executive Director
Previously he was EVP of Merck, and was
responsible for all basic and preclinicalresearch activities. He also was professorof University of Washington.

Has more than two decades of experience indrug development.
Former SVP of GlaxoSmithKline
Senior adviser of pharmaceutical R&D

Robert Horvitz, PhD
Board Advisor & Scientific Advisory
Board Chair
Received Nobel Prize in Physiology or
Medicine in 2002 for discovering
programmed cell deathReceiving technical advice on biotech business development and investment
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

16

LTI Segment Highlights
Due to change of fiscal term last year, investment profit on equity method of
Kakaku decreased by YoY～ Active upfront investment on new business ～Income Before Income Taxes(JPY in 100 Million)

Segment Income Before
Income Taxes

Strategy of LTI Segment / Major ProgressDG grouping of invested companies, JV establishment withalliance companies

New business/Upfront investment



Incubation of new business, business expansion bycollaboration with DG group

12.5
6.4

-0.6
5.5

(Apr.-Jun.)

FY17.3 1Q(Apr.-Sep.)

FY18.3 1Q(Apr.-Jun.)

Note) FY17.3 1Q booked 6 months (Apr.-Sep.) of investment
profit on equity method of Kakaku.com, Inc.



Creation of long and sustainable business profit

 Contents business (JV with Kodansha)
 Started compilation media “HOLICS”
combining good contents and AI technology
 Lifestyle support business Strengthen collaboration with DG groupbased on existing profitability model
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

17Topics
Lifestyle support business DG Life Design has started
Started compilation media “HOLICS” in June combining good contents of magazines and AI technology

Life care business＜-Support andmanagement service-Location information
service (children/theelderly)Sports marketingbusiness-Business support
for sports andentertainment＞
Media-application
business

Wine business#1 Wine School
In JapanWork style reform

Application
for smartphones

Collaboration withother companies-Healthcare business-Asset managementadvisory business andothersDG Group’s First Lifestyle Business

Lifespan extension
to 100 years old

https://holics.jp/

Started June 28, 2017
Full open will be end of year
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

18Appendix

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

19Quarterly Consolidated Sales /Income Before Income Taxes
YoY Sales grew by 13% 13.1 B JPY, income before income taxes decreasedby 42% 1.8 B JPY～ Growth gaining traction in MT and FT. Income before income taxes increased
compared to 3Q in FY17.3 due to no impairment loss booking burden of last fiscal year ～（JPY in Million）

FY16.6【Net Sales】

FY17.3【Income Before Income Taxes】

FY18.3

FY16.6

FY17.3

FY18.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved20Quarterly Comparison of MT Segment
Both sales and income before income taxes marked double digits big growth～ Growth gaining traction in performance-based ads. Data science business grew steadily ～（JPY in Million）

FY16.6【Net Sales】

FY17.3【Income Before Income Taxes】

FY18.3

FY16.6

FY17.3

FY18.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved

21Quarterly Comparison of FT Segment
Achieved income before income taxes +23% YoY with significant growth oftransaction volume～ Payment grew in CtoC domain relating to event ticket selling, in addition to growth offace-to-face payment and dealer business in overseas ～（JPY in Million）

FY16.6【Net Sales】

FY17.3【Income Before Income Taxes】

FY18.3

FY16.6

FY17.3

FY18.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved

22Quarterly Comparison of IT Segment
US business sales grew but income before income taxes ended in deficit due tono stock sales in 1Q～ Extend investment portfolio both domestically and abroad
Book value expanded to 12.5 B Yen ～（JPY in Million）

FY16.6【Net Sales】

FY17.3【Income Before Income Taxes】

FY18.3

FY16.6

FY17.3

FY18.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved

23Quarterly Comparison of LTI Segment
Due to change of fiscal term, investment profit on equity method of Kakaku
decreased by YoY～ Setting up the mid-long term incubation framework of investments ～(JPY in Million）【Income Before Income Taxes】【GMV growth for consumable goods】【Number of online reservations】

Kakaku.com

Tabelog（in ten thousand）

FY16.6

FY17.3

FY18.3Results Briefing for Q1 FY2018, Kakaku.com, Inc.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

24Quarterly Profit and Loss (Consolidated)

JPY in Million

FY17.3

FY18.3

1Q

2Q

3Q

1Q

11,55812,258

12,634

13,103Operating income

412

493

-182

464

Ordinary income

1,770

1,544

363

1,111

Income before income taxes

3,137

1,564

1,116

1,830

2,678

1,014

595

1,267

Net sales

Net income attributableto owners of parent

Copyright © 2017 Digital Garage, Inc. All Rights Reserved25Quarterly Segment Profit and Loss (Consolidated)

JPY in Million

Net sales

FY17.3

FY18.3

1Q

2Q

3Q

1Q

11,55812,258

12,634

13,103

MT

Marketing Technology

6,550

6,843

7,100

7,800

FT

Financial Technology

4,511

4,818

4,810

4,951

IT

Incubation Technology

486

584

705

337

LTI

Long Term Incubation

10

12

17

14

3,137

1,564

1,116

1,830

Income before income taxes
MT

Marketing Technology

368

415

290

466

FT

Financial Technology

468

462

547

578

IT

Incubation Technology

1,364

142

-740

-114

LTI

Long Term Incubation

1,258

670

970

554

Note: Income before income taxes per segment is based on figures prior to elimination or group deduction, etc
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

26

Press Releases
Date

Title

2017.6.28

Digital Garage and Kodansha Establish HOLICS, a Compilation Media Service Combining Superior
Magazine Content with AI Technology

2017.6.20

DG Lab to Unveil Open Platform for Interactive Agent Technology that Uses Artificial Intelligence2017.6.1

Digital Garage to Invest in AI Technology Startup Studio All Turtles and Support their Business
Development in Japan.

2017.5.31

THE NEW CONTEXT CONFERENCE 2017 TOKYO on July 25-26 The Event will Focus on Biotechnology
and Blockchain

2017.5.12

Digital Garage officially launches lifestyle service for wealthy consumers Business integration with two
subsidiaries leads to development of DG Life Design business2017.4.5

Blockstream Launches New Confidential Assets Feature for Enterprise Blockchain Customers (Press
Release of Blocksteam)

Copyright © 2017 Digital Garage, Inc. All Rights Reserved27

Please note that the business forecasts and strategies covered in today’s presentation are based on our current evaluation and future results may vary significantly depending
on unforeseeable events or circumstances. This announcement is solely for the purpose of the investors relationship and is not for making any solicitation for investment inany securities. This announcement does not constitute an offer to sell or the solicitation of an offer to buy any securities in the United States or any other jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any securities of our consolidated
subsidiaries have not been registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements of the U.S. Securities Act. Any public offering of securities to be made in the United States will bemade by means of a prospectus. Such prospectus will contain detailed information about the company making the offer and its management and financial statements.