Financial Resultsfor Fiscal Year
Ended December 31, 2019
February 5, 2020
SIOS Corporation(Stock Code: 3744 on the Second Section of Tokyo Stock Exchange)© SIOS Corporation All rights Reserved.

Table of Contents
Ⅰ Summary of Business Results for the Fiscal
Year Ended December 31, 2019 (FY 2019)

Ⅱ Review of FY 2019
Ⅲ Medium-Term Business Plan for FY 2020-2022
and Business Forecasts for FY 2020
© SIOS Corporation All rights Reserved.

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Ⅰ

Summary of Business Results
for the Fiscal Year Ended
December 31, 2019 (FY 2019)© SIOS Corporation All rights Reserved.

Consolidated Financial Results for FY 2019
FY 2018
Results
Net sales

12,799Gross profit

4,210

Operating profit

290

Ordinary profit

310

Profit (loss)
attributable to ownersof parent

225

EBITDA

375

ROIC

8.7%

FY 2019
Results

13,686
4,345
54
96
32
145
1.7％

（In millions of yen）

Change% Change

＋887

＋6.9%

＋135

＋3.2%

△235

△81.1%△214△69.0%△193△85.7%△230△61.4%－－*EBITDA: Operating profit + Depreciation + Amortization of goodwill*ROIC: Operating profit after tax / (Shareholders’ equity + Interest-bearing debts)© SIOS Corporation All rights Reserved.

4

Consolidated Net Sales（In millions of yen）

13,686
12,799Record-high net
sales achieved in
FY 2019(Up 6.9% YoY)FY2018FY2019© SIOS Corporation All rights Reserved.

5

Consolidated Operating Profit, EBITDA, and R&D Spending（In millions of yen）

600

551

 Operating profit declinedby ¥235 million from theprevious year.

375

450
300

652

290
145

150

54

0

FY2018Operating Profit

 R&D spending remainedrobust.

FY2019
EBITDA

R&D© SIOS Corporation All rights Reserved.

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Consolidated Balance Sheets
As of December 31, 2018

As of December 31, 2019 （In millions of yen）

Current assets Total liabilities
4,383
3,970
(including(including
cash andinterest-bearing
deposits ofdebts of 751)
2,138)

Current assets Total liabilities
4,479
4,023
(including(including
cash andinterest-bearing
deposits ofdebts of 614)
2,266)

Investment andother assets 635

Total net
assets1,359

Investment andother assets 438

Total net
assets1,308

Total assets and net assets
5,330
5,330

Total assets
投資その他
438 Total liabilities
and net assets
5,332
5,332

 Property, plant and equipment 221
 Intangible assets 89

 Property, plant and equipment 186
 Intangible assets 226

Total liabilities

 Intangible assets: an increase of ¥134 million in software in progress Net assets: a decrease of ¥94 million in valuation difference on available-for-sale securities© SIOS Corporation All rights Reserved.

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Analysis of Consolidated Cash Flows（In millions of yen）

△101
2,008

363

Cash and cash
equivalents asof December
31, 2018

Cash flows
from operating
activities

Cash flows
from investing
activities

△130

△5

2,136

Cash flows
from financing
activities

Effect of change
in exchange rateon cash andcash equivalents

Cash and cash
equivalents asof December
31, 2019© SIOS Corporation All rights Reserved.

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YoY Changes in Cash Flows(Millions of yen)
Cash flows fromoperating activities
Amount of YoY changes

Increase of ¥363

Breakdown

Increases• ¥135 resulting from profit
before income taxes• ¥280 resulting from anincrease in notes andaccounts payable trade• ¥117 resulting from anincrease in advances
received

Decreases• ¥142 resulting from anincrease in notes andaccounts receivabletrade• ¥109 resulting from adecrease in accrued
consumption taxes

Cash flows frominvesting activities

Cash flows fromfinancing activities

Decrease of ¥101

Decrease of ¥130

• ¥159 resulting frompurchase of intangible
assets• ¥133 resulting fromrepayments of longterm loans payable© SIOS Corporation All rights Reserved.

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Cash Flows and Investments（In millions of yen）

1200
800

262

400
0
(400)

△106

R&D projects andinvestments fundedby an increasinglevel of cash flows(800)

FY2018FY2019CF from operations(excluding R&D expenses)
CF from investing activities
R&D spending
Free cash flows© SIOS Corporation All rights Reserved.

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Open System Infrastructure BusinessNet sales

7,695 million yen, up 6.4％ YoY（In millions of yen）

7,695
7,231

 Sales of business-continuity solutions

showed a solid increase, fueled bystrong demand for our core
LifeKeeper* in Japan.
 Sales of software products sourced
from Red Hat, Inc.* increased fromthe previous year.

FY2018FY2019© SIOS Corporation All rights Reserved.

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Open System Infrastructure Business
Segment income

58 million yen, down 49.0％ YoY（In millions of yen）

 Segment income declined YoY due

115

to increases in labor cost at a U.S.
subsidiary as well as in development

58

FY2018

cost to upgrade LifeKeeper.

FY2019© SIOS Corporation All rights Reserved.

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Application BusinessNet sales

5,991 million yen, up 7.6％ YoY（In millions of yen）

5,991

 Revenues from the provision of support

for system development and

5,568

implementation to financial institutions
achieved steady growth.

 Revenues from the Gluegent series*
maintained momentum of growth.
 Sales of our core software applicationsfor MFPs* declined, affected by a new
FY2018FY2019subscription business* launched in the
fourth quarter.
© SIOS Corporation All rights Reserved.

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Application Business
Segment income

Loss of 4 million yen, compared with anincome of 174 million yen the year before（In millions of yen）

 Segment income declined YoY partly

174

because the loss from unprofitable projects
undertaken in the first half of the year toprovide support for system development andimplementation to financial institutions was
not fully offset in the second half, and partly because sales of the following
high-margin products developed in-house-4
FY2018

were weak.

FY2019• Software applications for MFPs
• Management support system for financial
institutions© SIOS Corporation All rights Reserved.

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Ⅱ

Review of FY 2019

© SIOS Corporation All rights Reserved.

Business Challenge ①: Software Applications for MFPs

Challenge

A larger-than-expected number of corporate customers
switched from a perpetual licensing model for our highmargin software applications for MFPs to a subscription
model launched in the fourth quarter of FY 2019, and therecognition of some of the subscription revenues wasdeferred to FY 2020, bringing the FY 2019 revenues fromthese applications down.
リプションでAction

It is inevitable that revenue or profit of a software productdeclines temporarily while we make a transition from aperpetual licensing model to a subscription model. We
intend to bolster sales to new and existing customers byoffering products and services that meet their needs andreleasing regular functional updates.
© SIOS Corporation All rights Reserved.

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Business Challenge ②: Business with Financial Institutions(1) Provision of support for system development and implementation
Challenge

ActionProfit in this business declined due to unprofitable projects undertaken
and delayed in the first half of FY 2019. We conducted more stringent
preliminary assessments to screen out unprofitable projects.
Continue to perform a stringent assessment of a proposed project
before closing a deal

(2) Sale of management support system
Challenge

ActionThe recognition of revenues from orders received in the fourth quarter of
FY 2019 was deferred to FY 2020, which made it impossible to make up
in the second half of the year for the shortfall in sales and profit posted
in the first half.
Offer clients subscription options as part of our efforts to change thenature of this business fundamentally© SIOS Corporation All rights Reserved.

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Ⅲ

Medium-Term Business Plan for FY
2020-2022 and Business Forecasts
for FY 2020
© SIOS Corporation All rights Reserved.

Primary Objective and Management Metrics Establishedin Medium-Term Business Plan for FY 2020-2022

Primary Management Objective
Under the mission of making the impossible possible for the people of
the world, the SIOS Group works toward achieving its primary management
objective of pursuing innovative solutions to resolve issues affecting people

and to contribute to a better society.

Management Metrics
The Group uses EBITDA and ROIC as its key management metrics to continue togenerate positive cash flow. Positive cash flow enables the Group to invest in
the three driving forces for our growth—people, research and development,
and a corporate culture that fosters innovation—and to return profit to ourshareholders and stakeholders. Through these efforts, the Group works towardachieving its primary management objective.
© SIOS Corporation All rights Reserved.

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Basis for Achieving the SIOS Group Mission
Make the businessfoundation more solid
Raise the level ofCarry out
customer
M&A
satisfaction

Release new
products andservices

Maintain good
relationships
withEnhance existing
stakeholders
products andservices
Make the businessfoundation more solid

Improve performanceon key management
metrics

Generate
positive cash
flows

Reduce interest-bearing
debts

Invest in people, R&D, and acorporate culture that fosters
innovation

Return profit toshareholders and otherstakeholders

Increase sales andgross profit
Optimizing SG&A expenses

Invest to achieve the mission
Return profit to shareholders andother stakeholders

Achieve greater
EBITDA andROIC© SIOS Corporation All rights Reserved.

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Review of FY 2019 ①
Release new
products andservices

Released SIOS bilink, a platform that supports
companies operating under subscription
business models

Enhance existingproducts andservices

Released an AI-enabled service solution for MFPs
that recognizes confidentiality designations on
documents for greater information security

Reduce interestbearing debts

Repaid ¥130 million of loans
payable© SIOS Corporation All rights Reserved.

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Review of FY 2019 ②

Invest in people, R&D,
and a corporate culturethat fosters innovation• Rolled out a new container* platformbusiness to meet the growing needs
among corporate clients to pursue
digital transformation (DX)*• Introduced new talent management
programs, such as OKR* and 1 on 1*

Return profit toshareholders and otherstakeholders• Resumed dividend payment of¥5.0 per share for the first timein five years© SIOS Corporation All rights Reserved.

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Medium-Term Business Plan for FY 2020-2022
We will use the transition to a subscription business model to lay thegroundwork for sustained growth under the three-year plan and will work
toward achieving EBITDA of ¥560 million and ROIC of 14.7% in FY 2022.
（In millions of yen）

2019

2020

2021

2022

EBITDA

145

180

310

560

ROIC

1.7%

2.7%

7.1% 14.7%© SIOS Corporation All rights Reserved.

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Key Initiative: Transition to a Subscription Business Model ①
Background and Benefits of Making a Transition to a Subscription Model
BackgroundAs companies have been investing aggressively in
implementing DX, more and more of them have beenswitching from perpetual licensing of software to subscription.
 User benefits of switching to a subscription model① Lower initial cost
② Ease of cancellation③ Ability to continue to use up-to-date products and services

 Software vendor’s benefits of switching to a subscription model① Ability to create a steady and recurring stream of revenue and profit② Ability to collect information about customers’ usage of products
and services to continually improve their quality© SIOS Corporation All rights Reserved.

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Key Initiative: Transition to a Subscription Business Model ②
Why We are Making a Transition to a Subscription Model

Offer corporate customers
subscription options for our products
and services developed in-house
We can better assist our corporate customers in theirefforts to implement DX by offering them subscription
options for our products and services, which is a
critical business model for our long-term growth.
© SIOS Corporation All rights Reserved.

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Key Initiative: Transition to a Subscription Business Model ③
Projected Revenues from Subscription Business for Products and Services Developed In-House(Millions of yen)

2,340
1,790

FY 20182018年度

2,530
1,940

FY 20192019年度

2,860
2,160

FY 2020
2020年度

Revenues from subscription
サブスクリプション売上




2,500

2,910

FY 20212021年度

3,100 3,160

FY 20222022年度

売り切りモデル売上
Revenues from perpetual licensing

We intend to make a transition to subscription business not only for software
applications for MFPs but also for our other software products.
Revenues from subscription are projected to reach the level of those from perpetual
licensing business in FY 2022.
© SIOS Corporation All rights Reserved.

26

Consolidated Business Forecasts for FY 2020
We intend to maintain our momentum of growth for 10 consecutive
fiscal years and achieve net sales of ¥14.3 billion in FY 2020.
FY 2019
Results
Net sales

13,686

Operating profit

54

Ordinary profit

96

Profit (loss)
attributable to ownersof parent

32

EBITDA

145

ROIC

1.7%

FY 2020
Forecasts

14,300
80
100
40
180
2.8%

© SIOS Corporation All rights Reserved.

Change（In millions of yen）

% Change

+613

+4.5%

+25

+45.6%

+3

+3.9%

+7

+23.6%+34+24.0%－－
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Key Strategies for FY 2020 ①
Raise the level ofcustomersatisfaction

Conduct stakeholder surveys to better serve ourcustomers and improve the quality of our
products and services

Enhance existingproducts andservices

Update existing products and add more value tothem to better serve customers in their greateruse of subscription and cloud

Optimizing
SG&A expenses

Optimize resource allocation within the Group toachieve greater efficiency and better manage
subcontractors© SIOS Corporation All rights Reserved.

28

Key Strategies for FY 2020 ②

Invest in people, R&D,
and a corporate culturethat fosters innovation

Implement programs intended to assist every
employee in achieving their full professional
potential• Ensure employees embrace new talentmanagement programs, such as OKR and
1 on 1• Offer employees more flexible working
arrangements• Expand the scope of CSR activities

Return profit toshareholders and otherstakeholders

Continue dividend payment of¥5.0 per share© SIOS Corporation All rights Reserved.

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Cash Dividends for FY 2019 and 2020

Annual cash
dividend per
share

23rd term

24th term

Fiscal year ended
December 31, 2019

Fiscal year ending
December 31, 2020
(Projected)

¥5.0

¥5.0

Fiscal year ended
December 31, 2019

Dividend payment of ¥5.0 per share resumed

Fiscal year ending
December 31, 2020
(Projected)

Dividend payment of ¥5.0 per share planned© SIOS Corporation All rights Reserved.

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About SIOS Corporation

SIOS is Innovative Open Solutions
Listed on the Second Section of the Tokyo Stock Exchange, SIOS Corporation is a holding company that manages
subsidiaries having a wealth of expertise and assets in open source software, including Linux, AI and cloud technologies, andFintech.
Under the mission of making the impossible possible for the people of the world, the SIOS Group pursues innovative
solutions to resolve issues affecting people and to contribute to a better society.
Headquarters
CapitalEstablished

SIOS Building, 2-12-3 Minami Azabu Minato-ku, Tokyo, Japan
1,481 million yen
May 23, 1997

No. of employees

432 on a consolidated basis (as of December 31, 2019)

Main consolidated
subsidiaries

Japan:
SIOS Technology, Inc.
Gluegent, Inc.
Keyport Solutions, Inc.
Profit Cube Inc.

U.S.A.:
SIOS Technology Corp.

© SIOS Corporation All rights Reserved.

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Glossary
Page

Term

11

LifeKeeper

A failover software product that automatically switches a failed primary server to a backup server.

11

Software products sourced
from Red Hat, Inc.

Open-source software products developed by Red Hat, Inc., a provider of open-source solutions.

13
13

Gluegent series

Description"Gluegent Gate" which manages ID in the cloud, "Gluegent Apps group scheduler" etc. which added teamcalendar schedule management function etc to Google Calendar etc. We support business efficiency byusing enterprise cloud.

A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax
Software applications forcapabilities into one unit. The Group develops, markets, and updates document management software
multifunction printers (MFPs) applications, such as Quick Scan and Speedoc, that run on an MFP.

Subscription model

A business model that charges customers a recurring monthly or annual fee to access a software productor service.

22

Digital transformation (DX)A process in which a company uses data and digital technology to transform its products, services, andbusiness models to more effectively respond to constantly changing business environments and deliver
greater value to customers and society as well as to transform its business processes and organizational
structure and culture to gain greater competitive advantage.

22

Container

22

OKR

Objectives and Key Results. A goal management framework for establishing ambitious objectives withmeasurable results and tracking progress.

22

1 on 1

A one-on-one meeting that a manager conducts with an employee to assist her or him in achieving
professional growth and improving their job performance.

13

A standard unit of software into which the host OS is divided logically and that packages everything needed
to run an application, such as codes and system libraries, to make it work like an independent server.

© SIOS Corporation All rights Reserved.

32

Cautionary Statement
Forward-looking statements about the Company’s business outlook contained in this document
reflect management’s assumptions and judgments made on the basis of available information, andmay include risks and uncertainties. We caution that significant risks and uncertainties could cause
actual performance to differ materially from what is discussed in the forward-looking statements.
Significant risks and uncertainties that might affect our performance include, but are not limited to,the economic environment and market conditions in which we operate.

For inquiries about this document
Call the IR Section of SIOS Corporation on 03-6401-5125(+81-3-6401-5125 from outside Japan)
or fill in and send an online inquiry form available at:https://mk.sios.com/SIOS_Inquiry.html© SIOS Corporation All rights Reserved.

33