Consolidated Financial Results for the First Halfof the Fiscal Year Ending March 31, 2024
(From April 1, 2023 to September 30, 2023)

Financial Results Briefing Materials
October 31, 2023

Digital Arts Inc.
(Securities Code: 2326)

Copyright © 2015 Digital Arts Inc.

Product LineupWeb

E-mailEnabling users to securely connect to
websites without security concerns

Enabling users to securely send andreceive email without security
concerns

Endpoint Web
security

Secure proxyappliance

Malicious websitefiltering software
for home use

fileFile encryption solution
Automatically protecting files fromthe moment of creation and allowing
users to delete them after transfer

Serverless solutions to prevent wrong
email transmission by providing
advice when necessary

File transfer solution
Supporting secure filetransfers without leaking
critical information

IDaaS

Communication

Equipped with multi-factor
authentication to ensure the securemanagement of IDs for cloud services

Providing workplaces and places foreducation with secure and comfortablecommunication spaces

Countermeasures toprevent wrong emailtransmission
for email software
Chat and
onlineconferencing

Countermeasureagainst wrong emailtransmission
for Outlook Web App
(OWA)

Video
conferencing
tool

2

Copyright © Digital Arts Inc.

Contents
01

Consolidated Results Highlights

02

Non-consolidated Results Highlights

03

Net Sales by Market

04

Status of Measures for the Fiscal Year Ending March 2024

05

FY03/24 Initiatives

06

Full-Year financial Forecast for the Fiscal Year Ending March 2024

07

Return to Shareholders for the Fiscal Year Ending March 31, 2024
3

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 202401

Consolidated Results
Highlights

4

Copyright © Digital Arts Inc.

Consolidated Results Highlights

Contracts

Net sales

Operatingprofit

4,976million yen(up +239million yen
or +5.0% year on year)• In the enterprise section market, the Group achieved growth bywinning new projects and new customers for DAC. It did so byoffering a new optional function to respond rising demand for cloudservices and comprehensive security needs.
• In the public sector market, the Group continued to gain new GIGA
School Concept projects. However, the contract amount decreased,
due to the rescheduling of some local government projects to 3Q
and onwards.

5,563million yen• Net sales increased in the enterprise sector market thanks togrowth in sales of cloud service products and DAC growth.

2,188million yen• In cost of sales, server expenses and personnel expenses increased
due to rises in the number of licenses for cloud service products andthe number of staff at DAJ and DAC, respectively.

(up +479million yen
or +9.4% year on year)(△58 million yen
or △2.6% year on year)• In the public sector market, net sales increased slightly following
sales for the GIGA School Concept projects and sales forgovernment projects.

• SG&A expenses increased due to expenses for sales promotion
events for agents in conjunction with new product releases.

5

Copyright © Digital Arts Inc.

Consolidated Statement of Income
Expenses increased primarily due to preparations for the release of new products andnew functions and a rise in the number of DAC staff members.

(Million yen)

FY March 2023
1H

FY March 2024
1H

Change YoY

FY March 2024
Full-Year Forecast

Contracts

4,737

4,976

＋5.0%

-

Net sales

5,084

5,563

+9.4%

11,500

Cost of goods sold

1,668

2,128

+27.6%

3,850

Gross profit

3,416

3,435

+0.6%

7,650

Selling, general and administrative
expenses

1,168

1,246

+6.7%

2,500

Operating profit

2,247

2,188

△2.6%

5,150

Operating margin

44.2%

39.3%

-

44.8%

Ordinary profit

2,263

2,201

△2.7%

5,150

Profit attributable to owners ofparent

1,558

1,521

△2.4%

3,550

EBITDA

2,745

2,670

△2.7%

-

* Financial Forecast is the consolidated financial forecast announced on May 9, 2023.
* EBITDA = Operating profit + Depreciation + Tax expenses included in operating expenses

6

Copyright © Digital Arts Inc.

Consolidated Cost of Goods Soldand Selling, General and Administrative Expenses
FY March 2023
1H

FY March 2024
1H

Change YoY

1,668

2,128

+460

Labor

727

923

+195

Depreciation

423

411

△11

Communication
expenses

525

602

+77

Cloud server expenses rose as a result of an increase in licenses forcloud service products and foreign exchange fluctuations (+77M)

Other

415

651

+236

Increase due to the development of new DA products (＋72M)
Increase due to the expansion of DAC's business (+120M)

Transfer to otheraccounts

△423

△461

△37

Selling, general andadministrative expenses

1,168

1,246

+77

Personnel expenses

583

614

+31

Advertising expenses

151

160

+8

Other

433

471

+37

(Million yen)

Cost of goods sold

Main Factors for Change

Increase due to the enhancement of DAJ's*1 development
workforce (+24M)
It rose with the strengthening of DAC*2 consultants (+142M)

Increase in the number of personnel in DAJ*1 (+13M)
Increase in the number of personnel in DAC*2 (+18M)*1: DAJ = Digital Arts Inc.
*2: DAC = Digital Arts Consulting Inc.

7

Copyright © Digital Arts Inc.

Trend in Consolidated Contracts
Consolidated contracts totaled 4,976 million yen, up +5.0% year on year.
Trend in Contracts
Cloud service products
License sales products/Others

4,737
30.6％

69.4％

1,449

3,288

4,976

(Million yen）

1,476

29.7％

(+5.0%)

+1.9%

+6.4%

FY Mar. 2023 1H

3,500

70.3％

•

Contracts for cloud service products
increased 1.9% because the Group not
only gained new projects steadily amid
growing demand for cloud services inthe enterprise sector market but it also
gained new GIGA project orders as in
the previous fiscal year.

•

In the license sales products and othercategory, contracts rose 6.4% because
DAC’s contracts grew despite orders
from some local governments being
pushed off to 3Q and later in the public
sector market.

FY Mar. 2024 1H

8Copyright © Digital Arts Inc.

Trend in Consolidated Contracts
The order backlog excluding GIGA School projects increased despite
a reduction of total contracts.
Trend in order backlog
Sales FY3/2025 onwards (GIGA)

Sales 3-4Q FY3/2024 (GIGA)

Sales FY3/2025 onwards

Sales 3-4Q FY3/2024

6,218

5,745

(Million yen）

3,278

△23.4％

2,511

①

934

＋8.9％

1,017

②

1,100

＋14.5％

1,260

905

＋5.6％

956

End of Sept. 2022①

Many GIGA School Concept projects are fiveyear contracts. Over time, more sales areposted. The amount of sales to be recorded will
drop in FY March 2025 and later.

②

Sales to be recorded in the 3Q-4Q period of the
fiscal year under review will rise because theGroup has been continuously gaining new GIGA
School Concept projects.
Contracts are expected to rally sharply
following an increase in projects related to theNEXT GIGA School Concept that started in FY
March 2024.

③③

End of Sept. 2023

9

The order backlog is steadily increasing,reflecting the gradually growing percentage ofenterprise contracts that are for cloud service
products. Many of these are one-year
contracts.
Copyright © Digital Arts Inc.

Change in Net Sales
Consolidated net sales grew 9.4% year on year, to ¥5,563 million.
Change in Net Sales
Cloud service products
License sales products/Others

5,563(+9.4%)

5,084

35.3％

64.7％

1,796

3,288

+12.5%+7.7%

FY Mar. 2023 1H

2,021

3,542

(Million yen)•

Net sales of cloud service products
increased 12.5% year on year, reflecting
the steady acquisition of new projects inthe enterprise sector market amid
growing demand for cloud services, aswell as continued success in receiving
new GIGA School projects.

•

Net sales of license sales products andother increased 7.7% year on year as aresult of the growth of DAC's sales
although orders from some local
governments were pushed off to 3Q andlater in the public sector market.

36.3％

63.7％

FY Mar. 2024 1H

10

Copyright © Digital Arts Inc.

Quarterly Trend in Net sales, Operating profit
Net sales hit a record high in the Second quarter under review.
1Q

2Q

3Q

4Q

(Million yen)

10,436
9,051
2,778
2,364

6,825

2,573

5,639

4Q

1,500

3Q

1,376

2Q
1Q

1,514

2,074

4,413

4,126
1,649
2,326
679

1,687

1,249

683
413

1,413

Net sales

Operating profit

Net sales

FY March 2020

2,977

1,101

2,632

825

1,348

1,919

FY March 2021

Net sales

Operating profit

FY March 2022

11

1,185

3,022

980

2,386

1,238

2,188
2,541

1,009

731

485
Operating profit

2,698

945

1,004
663

551

5,563

2,134

Net sales

Operating profit

FY March 2023

1,315
872

Net sales

Operating profit

FY March 2024

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Cost of Goods Sold
Cloud server expenses (communication expenses) and labor costs increased, the former due toa rise in the number of licenses for cloud service products and foreign exchange rate
fluctuations and the latter reflecting the enhancement of DAC's consultant personnel.

(Million yen)Transfer to other accounts
Cost of goods sold
Other

1,204

Communication expenses

1,102

Depreciation
Labor

946
723

Communication
expenses
Depreciation

609

622

110
183
34

121 175
45

203

202
447

427
Labor

262

254

1Q

2Q

141
60

793
151 210

237

87

486
324
3Q

FY March 2021

134

225

153
158

321

164 220
213

169
208

206

198

839

921

349
4Q

332
1Q

427

2Q

223

244

330

349

3Q

4Q

FY March 202212

244 220239 221

1,248
302

229

1,340
349

231

247 201
312

324

308

294

280

221
766

736

701

624

613

584

173 226

170 222

217

214

204

962

989

1,235

354
1Q

202 901

373

2Q

206

983

430

3Q

FY March 2023

208

200

211
1,108

476

452

470

4Q

1Q

2Q

1,014

1,019

FY March 2024

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated
Selling, General and Administrative Expenses
Personnel expenses
Advertising expenses(Million yen)

other

660
574
501

499
414

195
32

161

485
191

153
44

1Q

218

2Q

169

229
193

159
59

58

51

70

277

263

3Q

4Q

609
558

526

487

59

166

34
272

609

77

204

74

214

78

648
597

578
238

232

216

67

80

79

432
301

3Q

FY March 2021

262

4Q

323

1Q

2Q

FY March 2022

302

280

1Q

2Q

316

293

3Q

4Q

FY March 2023

13

329

1Q

285

2Q

FY March 2024

Copyright © Digital Arts Inc.

Consolidated Balance Sheet
The equity ratio increased to 68.1%, reflecting a decrease in total assets
after the acquisition of treasury shares and payment of dividends.
(Million yen)
As of end of
2Q FY March 2023

As of end of
FY March 2023

As of end of
2Q FY March 2024

Change fromend of FY
March 2023

Current assets

18,08818,925

18,637△1.5%(Cash and deposits)

16,65417,01816,259△4.5%

Non-current assets

2,217

2,223

2,259

+1.6%

Total assets

20,305

21,14920,896△1.2%

Current liabilities

7,090

6,924

6,582

△4.9%

(Advanced received)

5,748

5,187

5,172

△0.3%

Non-current liabilities

50

50

50

+0.1%

Equity capital

13,13114,141

14,229+0.6%

Net assets

13,164

14,173

14,262+0.6%

Equity ratio

64.7%

66.9%

68.1%

-

ROE

12.3%

23.3%

10.7%

-

ROA

7.9%

15.1%

7.2%

-

14

Main Factors for Change

Treasury share buy-back fund △1,500M

Income taxes payable △114M
Decreased 144 M following the payment of accounts
payable - trade for license purchases and others△144M

Treasury share buy-back △877M,
Dividends paid △561M, Profit ＋1,521M

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

02

Non-consolidated Results
Highlights

15

Copyright © Digital Arts Inc.

Summary of Non-consolidated Results
SG&A expenses increased due to the development of new products
and a rise in communication expenses (cloud server expenses).
(Million yen)

FY March 2023
1Q

FY March 2024
1Q

Change YoY

FY March 2024
Full-Year Forecast

Contracts

4,032

3,962

△1.7%

-

Net sales

4,379

4,548

+3.9%

10,000

Cost of goods sold

1,093

1,244

+13.8%

2,650

Gross profit

3,285

3,304

+0.6%

7,350

Selling, general andadministrative expenses

1,067

1,133

+6.2%

2,350

Operating profit

2,218

2,171

△2.1%

5,000

Operating margin

50.7%

47.7%

-

50.0%

Ordinary profit

2,225

2,183

△1.9%

5,000

Profit

1,538

1,512

△1.7%

3,450

* Financial Forecast is the non-consolidated financial forecast announced on May 9, 2023.

16

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

03

Net Sales by Market

17

Copyright © Digital Arts Inc.

Consolidated Contract Amount by Market
The contract amount expanded in the enterprise sector market
while it contracted in the public sector market.
Trend in Consolidated Contract
Amount by Market•

In the enterprise sector market, the contract
amount was up 408 million yen or 15.9% due toincreased orders received resulting fromadditional functions of the 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, the Group continued
to gain new GIGA School Concept projects and alarge project from a public agency. However, thecontract amount was down 157 million yen or
8.1% year on year, impacted by the
postponement of projects for some local
governments to 3Q and the closure ofconventional classes using computers.

(Million yen)

4,737

4,976

(+5.0%)

224

△5.4%

1,947

△8.1%

2,566

+15.9%FY Mar. 2023 1H

212

Consumer

1,790

Public2,974EnterpriseFY Mar. 2024 1H

18Copyright © Digital Arts Inc.

Consolidated Net sales by Market
Positive growth was achieved in both the enterprise sector market
and in the public sector market.
Trend in Consolidated Net Salesby Market

224(+9.4%)
△5.5%

2,287

+2.2%

2,573

+17.2%FY Mar. 2023 1H

In the enterprise sector market, net sales
increased 17.2%, or 441 million yen, due to a risein the number of new projects in response to
growing demand for cloud services, coupled withthe acquisition of new customers for DAC.

•In the public sector market, net sales rose 2.2%
or 50 million yen. This was a result of the postingof sales from new GIGA School Concept projects
that have continuously been received and sales
from a large project from a public agency,
although the postponement of orders from somelocal governments to 3Q and later and the decline
in sales of license sales products after the closureof conventional classes using computers did havea negative impact.

(Million yen)

5,563

5,084

•

211

Consumer

2,337

Public3,014EnterpriseFY Mar. 2024 1H

19Copyright © Digital Arts Inc.

Trend in Consolidated Net Sales by Market
Net sales for the first half reached a record high.

(Million yen)

5,563
5,084
4,552

211

Consumer

2,337

Public3,014Enterprise

224

229

2,287

3,101
2,420

1,610
175
609

1,935
170

174
1,096

2,764

2,764

235

254

179
922

219
1,049

1,108

970

754
1,832

2,271

2,573

1,366

1,419

1538

FY Mar. 2017

FY Mar. 2018

FY Mar. 2019

FY Mar. 2020

FY Mar. 2021

FY Mar. 2022

FY Mar. 2023

FY Mar. 2024

1H

1H

1H

1H

1H

1H

1H

1H

1,010

1,149

FY Mar. 2015

FY Mar. 2016

1H

1H

824

2,468

2,051

20

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Net Sales by Market
Net sales for the second quarter were a record high.

2,698

2,632

2,364 2,386

115

2,074

1,514
1,249
140

114

587

383

725

1Q

1,376
90

1,500
100
426

515

813

770

2Q

3Q

FY March 2020

975

4Q

1,687 1,649
1,413
115

104

103

109

2,134

1,919
113

116

118

2,573

785

105

103

105

Consumer

1,320

Public

1,596Enterprise

2,541
106

105

1,269

1,313

3,022

2,778

98

1,203
1,016

1,195

1,020

1,017

1,227

1,262

1,310

1,274

4Q

1Q

2Q

3Q

974

738
597

(Million yen)

574

451

847

1Q

985

971

2Q

3Q

FY March 2021

1,179

4Q

1,067

1Q

1,204

2Q

1,060

3Q

FY March 2022

21

FY March 2023

1,469

1,418

4Q

1Q

2Q

FY March 2024

Copyright © Digital Arts Inc.

03

Net Sales by Market

Enterprise Sector

22

Copyright © Digital Arts Inc.

Net Sales in Enterprise Sector Market by ProductIn response to the expansion of the scope of protection following the increasing frequency of damage from
more diverse cyber attacks and the expansion of scope for security in line with the trend towards one-stop
security measures, the Group released new products and functions enabling a healthy increase in new projects.

Trend in Net Sales in Enterprise
Sector Market by Product•

Sales of the i-FILTER series were brisk amid the growing
demand for Internet security in cloud environments
following the shift from the traditional boundary
protection model to a zero trust model.
（+88 million yen/+7.1%）•

The m-FILTER series captured demand forcountermeasures to address malware and the insecure
practice of sending a password-protected zip file and apassword for unzipping it separately by email (commonly
known as PPAP in Japan). Sales were strong.
（+46 million yen/＋9.6％）(Million yen)

3,014(+17.2%)

1

Other＋44.0％

1,008

DAC

130
487

＋2.2％

133

FinalCode

+9.6％

534

m-FILTER
series•The FinalCode series sold well, fulfilling the need to takemeasures to address PPAP and ransomware.
（+2 million yen/+2.2％）

1,248

＋7.1％

1,337

i-FILTER
series•

DAC made good progress acquiring new clients andachieved substantial sales growth (up 308 million yen or
44.0%), reflecting growing DX needs and demand for
security measures among enterprises.

2,573
6

700

FY Mar. 2023 1H

FY Mar. 2024 1H

23Copyright © Digital Arts Inc.

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

Security consulting sales*(Persons)

101

IT strategy consulting sales*(Million yen)

(Million yen)

225

783

116
502

197

End of FY March2023

End of 2Q FYMarch 2024

DAC actively recruited individuals with richknowledge and experience in operational reforms
and DX and with a high level of expertise in thearea of technology and cybersecurity.

FY Mar. 2023
1H

FY Mar. 2024
1H

Sales increased significantly after receiving projects
for the comprehensive support of all processes
including the examination, construction and operation
for assisting the enhancement of security through theapplication of advanced technologies, as well as
assisting the development of security governancesystems such as the Information system Security
Management and Assessment Program (ISMAP).

FY Mar. 2023
1H

FY Mar. 2024
1H

Sales grew steadily as a result of acquisition of
consulting projects regarding the formulation of IT
strategies, operational reforms, enhanced customer
experience (CX) and other matters for establishingsuperiority through the positive utilization of digitaltechnologies.

*DAC's net sales (after consolidated journal adjustments)

24

Copyright © Digital Arts Inc.

03

Net Sales by Market

Public Sector

25

Copyright © Digital Arts Inc.

Net Sales of Public Sector Market by ProductNotable changes in the market include the closure of classes using computers following the widespread useof GIGA terminals and the reduction of demand from local governments for the improvement of security.

Trend in Net Sales of Public Sector
Market by Product

2,287

2,337

(+2.2%)

42△18.7％

424

△4.1％

406

1,820

+4.2％

1,896

FY Mar. 2023 1H

34(Million yen)•

While the rescheduling of orders from somelocal governments to 3Q and later and theclosure of conventional classes using
computers following the widespread use of
GIGA terminals had a negative impact, salesof the i-FILTER series increased (by 75 million
yen or 4.2%) following the continuation of
GIGA School Concept projects from before theprevious fiscal year and the recording of sales
from a large project for a public agency.

•

Sales of the m-FILTER series fell slightly (by17 million yen or 4.1%). Although a large
project for a local government was gained,
procurement for enhanced security of local
governments were less active than in theprevious fiscal year.

FinalCodem-FILTER
seriesi-FILTER
seriesFY Mar. 2024 1H

26Copyright © Digital Arts Inc.

GIGA School Concept
Introduction of filtering under the GIGA School Concept*1
Introduction of charged filtering

Share of charged filtering introduced

Not yetintroduced,etc.

Competitors

25%

41%
Charged filtering already59%

introduced

75%•

i-FILTER

The percentage of boards of education thathave adopted pay filtering increased to 75%.

•

i-FILTER's market share increased
from 55% in 1Q to 59%.

*1：According to our survey of 1,741boards of education (Sept 2023)

27

Copyright © Digital Arts Inc.

03

Net Sales by Market

Consumer Sector

28

Copyright © Digital Arts Inc.

Net Sales of Consumer Sector Market by ProductNew issues raised include filtering measures for bring-your-own-devices(BYOD) for learning.
Trend in Net Sales of Consumer
Sector Market by Product

211

224

106

117
FY Mar. 2023 1H(Million yen)(△5.5%)＋0.6％△11.1％

107

104

•

In products for computers, the numberof users of multiple-year package
products and i-FILTER® for Multi-Device,
which are available on multiple
terminals, remained strong.

•

Regarding products for mobile phones
and other terminals, revenue fromcarriers decreased.

For computers

For mobile
terminals, otherFY Mar. 2024 1H

29Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

04

Status of Measures for
the Fiscal Year Ending March 2024

30

Copyright © Digital Arts Inc.

Progress in the Product Roadmap in FY March 2024
 The functional upgrade to fulfill comprehensive security needs and new product releases,
both of which were due to be done in the current fiscal year, were almost done by 2Q.
 Regarding the launch of the communication business, the product was released as scheduled.
Mar.
Web

CASB function of
i-FILTER@Cloud

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct. andlater

Released in
Apr. 3

Added in the fiscal year

Respond toneeds forcomprehensive
security

Cmmunication
Business

Web

i-FILTER AI chat filter

Mail

m-FILTER MailAdviser OWA

File

f-FILTER

AuthenticationStartIn

Chat

Released inAug. 16
Released inJul. 4
Releasescheduled forNov. 11

Released in
Sep. 7
Released inJun. 21

Desk

31

Copyright © Digital Arts Inc.

Status of measures to be implemented in the fiscal year ending March 31, 2024
Introduction of new products to fulfill comprehensive security needs and implementation of active marketing efforts.
Among the efforts for public entities and schools, products for enhancing security for local governments and GIGA School
projects are bullish.
Actions

MeasuresRespond to needs forcomprehensive securityUpgrade next-generation SWG functions
by adding the CASB function to i-FILTER@Cloud

Upgrade measures for detecting
and responding to malware infections

Improve measures against PPAP
and wrong email transmission solution

Develop non-VPN remote access products

Encourage the smart utilization of generative AIRelease IDaaS products with original authentication methods
such as authentication using positional data and third-party
authentication

For publicorganizations
and schools

Expand sales in enhanced security for local governments

Increase GIGA School Concept project market shareand prepare for the next update.

Improve next-generation SWG functions
and anti-malware measuresz

Total sales of Anti-Virus & Sandbox increased to 530 million yen
from the previous fiscal year's 358 million yen.
Response to the PPAP, wrong email transmissions,generative AI, ID management and other issues

New products fulfilling security needs were released as scheduled.

z

CASBfunction

AI chatfilter（Release scheduled
for Nov. 13）

Security improvements for local governments
Total contracts increased from 1,739 million yen in theprevious fiscal year to 2,122 million yen.
GIGA School Conceptz

Total contracts increased from 8,700 million yen in theprevious fiscal year to 9,300 million yen.

32

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

05

FY03/24 Initiatives

33

Copyright © Digital Arts Inc.

05

FY03/24 Initiatives

Responding to the ICT Environment

34

Copyright © Digital Arts Inc.

Strategy in Security Products Market
Expand the product portfolio to promote synergy in terms of
the existing main products' functions and customer base.
High

Marketgrowthrate

Investment areas

Future core areas (stable areas)

Future promising areas

XDR

30.2%

CSPM/
CWPP

28.2%

CNAPP

17.9%

File and content
sharing services

Vulnerability
assessment
(VA)

11.2%

17.9%

22.6%

Authentication

SASE

EDR and NDR

20.3%

Web access security

IDaaS

Unified endpoint
management(UEM) tools

 SWG
 SDP/IAP

Businesschat CASB

Improvement
domainLow

Expand the portfolio
to promising areas/
investment areas

Current portfolio

6.0%
5.4%

Low

＝ Market growth rates

 FWaaS and others

10.3%

Gateway security
 Security monitoring tools
 FW-, VPN- and UTM-related
products

Promising
areas

1.7%

2.4%

Implementation of downsizing,
withdrawal and collaboration
with other companies

Web filtering
Mail Security(including file
encryption)

Areas for acquisition
Stable areasof stable revenue

Our advantage
35

High
Copyright © Digital Arts Inc.

Responding to the ICT Environment

Expansion of White Operation
Maximize synergy between the existing main products and new products,
centering around White Operation, which is our strength.
What is White Operation?
The products adopt White Operation based on whitelist database, instead of blacklisting, which is a common concept of
security measure. It protects an ICT environment from unknown and/or existing threats irrespective of user's literacy.
Not in the
category list
Unknown
malicious URLs

Threatinformation sites,
etc.
Existing
malicious URLs

Category
judgment
Websites used forstudy and work

Features of White Operation:
 Digital Arts' unique operating
method Constructing high coverage
rate/high accuracy DB ofwhitelist
 Having countermeasuresagainst falsification「i-FILTER」
Whitelist Database36

Copyright © Digital Arts Inc.

Responding to the ICT Environment

Areas of Focus for This Term
Release new products/new functions for Network, Authentication, Terminal/Data and Chat and Online
Conferencing System aiming at providing the total support for the ICT environment.
ICT environment

Internal processapplications

Internet access

Cloud
Application

Log

Chat and Online Conferencing System

Terminals anddata

External terminals
and data

Operation
monitoring
Monitoring
Detection andresponse
Analysis
ReportConsumer devices

37

IAP
CASB
SWG
SEG
Cloud FW

Authentication

SIEM
Log collection andcentralized
management

Authentication
SystemInternal terminals
and data

SD-WAN
Network
optimization

Network(Next-generation
SWG)

Network

Sending andreceiving
email

Solutions＝ Area of focus
for this term

ID-aware proxy (non-VPN)
Visualization and control of cloud services

Cloud proxy
Secure email gateway
Network control

IDaaSManagement of IDs on the cloud

Storage

Data storage and sharing

DLP

Prevention of loss or leakage ofconfidential data

IRM

Data Encryption

MDM

Mobile device management

EDR

End-point monitoring and threat detection
Copyright © Digital Arts Inc.

Responding to the ICT Environment

New Products and New Function Releases
Add the CASB function, to be one of the main functions in the next-generation SWG plan, anda new function for visualizing/controlling the status of use of generative AI increasingly indemand, to i-FILTER as standard features.

Network
SecurityNewfeatures

POINT

CASB function

AI chat filter

 The AI chat filter is a new function
designed for companies andorganizations willing to proactively use
generative AI, which is a trendy tool.

Control

Blocked by policy

Protection from threats

Restrictions on Shadow IT Usage

Data security

Control of confidential data

Visibility

Visualization of usage status and information leakage risk••

Visualize and control the status of useof cloud services
Enabling flexible and robust
countermeasures against information
leakage

Support for confirmation of users who madea post, their group and time of
posting/support for highlighting of detectedwords/reasons for detection

Support for
confirmation oftargetgenerative AI

Support for confirmationof detected words andword category Aim at creating further projects andincreasing user satisfaction, mainly
targeting small and medium enterprises
who cannot afford the high-priced
products of foreign affiliates due to theirlimited budgets since both the functions
are provided as standard features.

Supporting flexible management/control ofaccess to generative AI by service and byaccount

38

Copyright © Digital Arts Inc.

Responding to the ICT Environment

New Products and New Function Releases
Network
Security••

A product to provide pop-ups for email misdelivery supporting the Outlook Web Access (OWA) environment
Equipped with the original function to solve PPAP issues, meeting a wide range of needs for security
measures in email delivery

POINT

Recipients tab shows a list of all email addresses in
To, Cc and Bcc fields

Indicating the number of problems in
the Recipients, Text and Attached Filetabs.

Displaying the risks of erroneous
sending at once

The categories displayed at the
beginning of each domain are"external," "mobile," and "internal“.

Click on the destination address itself
to confirm* In addition to the above categories,
External, "Outside the unit" and"Within the unit" can be added.
The receiver can instantly be identified.
Automatically obtain information on eachuser's organization and convert thedomain into the organization information
so that erroneous addresses can be
spotted right away.

Pointing out what needs to be
confirmed when a cursor is pointed at
the address
The mail cannot be sent if any item isleft unconfirmed
The mail cannot be sent unless all thetabs, "Recipients," "Text" and "Attached
Files," are confirmed.

•

Measures to provide pop-ups for email misdelivery supporting the Outlook Web Access (OWA)•

Robust measures to prevent email misdelivery and solve PPAP issues

39 More users choose the Microsoft 365's OWA
environment as an environment to send andreceive emails since it works in any terminal
 Providing the original function to solve PPAP
issues in addition to the function to prevent
email misdelivery and allowing easy
introduction
 Aim at creating projects by understanding
the needs for security measures for email
deliveries that cannot be satisfied by OWA

Copyright © Digital Arts Inc.

Responding to the ICT Environment

New Products and New Function Releases
Authentication
security

Release StartIn, a new product featuring the original multifactor authentication
method, in addition to ID management, log management and ID provisioning,and providing secure authentication when using SaaS

Authentication method

ID management
・Active Directory integration
・Azure Active Directory integration
・Google Workplace integration

・Authentication with positional information

Digital Arts
・Third-party authentication
original function ・Regular authentication

・SAML integration
・One-time password (OTP) authentication
・Push authentication
・Smartphone biometric authentication
・Authentication with clients‘ certificates・IP restriction

Log management

ID provisioning

・Access log
・ID linkage log
・Report function

・i-FILTER@Cloud・m-FILTER@Cloud・FinalCode@Cloud
・Desk

40
POINT

 The main target of the product is corporate and educational customers of the company.

40

Copyright © Digital Arts Inc.

Responding to the ICT Environment

New Products and New Function Releases
Data
security• Release f-FILTER, an original solution to file transfer featuring the DLP function• Meeting the needs for measures to prevent information leakage of terminals/datain the ICT environment

Uploading

POINT(i) Check the files taken out(ii) File management after taking out

DLP(Data Loss
Prevention)

Determination ofimportant
information based on
unique definitions

File viewing
authority
management

File
Judgment

Scoring whether files
can be provided
externallySupervisor
approval(workflow)

Approved by superiors
through workflow andchecked by humaneyes

Antivirus

Virus check for sent
and received files

Specify who canview and download
files

Original cloudstorage Cross selling will be implemented to the existing users by stimulating their needs for integration of i-FILTER
with m-FILTER.
41

Copyright © Digital Arts Inc.

Responding to the ICT Environment

New Products and New Function Releases
Chat and Online
Conferencing
System••Desk was released on June 21 (our anniversary of foundation),launching the communication business.
Addressing security risks emerging in communication.

Chat and online
conferencing

Chats(for schools)Video
conferencing
tool

POINT

 Sales promotion activities (to create users of the free edition) to increase consumer awareness of
Desk GIGA School Edition were conducted targeting education boards and schools at first.
42

Copyright © Digital Arts Inc.

05

FY03/24 Initiatives

Education Business(GIGA School/School Affairs DX)

43

Copyright © Digital Arts Inc.

Education Business

Performance Forecasts

In the education business, contracts can be expected to increase
due to the special demands for GIGA School Concept, Next-generation schoolaffairs DX and DX high school*
for the five years following the FY March 2024.
Single year budget size
Approx.

¥195.3 billion
or more ※Possibility of financial support

up to 800 billion yen
for approx. 5 years
starting 2024※••

Maintenance of information security in the network with the assumption ofaccess control
Expanded scope of security support provided by the new product*Created by the Company based on each press article

44

Copyright © Digital Arts Inc.

NEXT GIGA

Update Timing for GIGA Terminal
GIGA terminals are being gradually updated due to the NEXT GIGA
School Concept since FY2024 and will go into full swing in FY2025.
GIGA terminal update timing
Other（6.6%）FY2023（0.4%）FY2024（8.0%）

From FY2027
onwards（10.8%）FY2026（22.4%）POINT



The Ministry of Education, Culture, Sports,
Science and Technology publicized its
research on the status of use of GIGA
terminals, etc.



As for the date of updating GIGA
terminals, approx. 60% of theeducation boards will be due for
updating by the end of FY2025.

As for later dates of updating, 22.4％ will
be due for updating in FY2026 and10.8％ from FY2027 onwards.

FY2025（51.7%）March 30, 2023, from a survey by the Ministry of Education, Culture, Sports, Science and Technology

45

Copyright © Digital Arts Inc.

School Affairs DX

Support for Guideline

The Ministry of Education, Culture, Sports, Science and Technology calls for the following implementation
as the direction of the next-generation school affairs DX:* As a regional fiscal measure, financial support of 180.5 billion yen on a single-year basis has always
been provided for computerization of school affairs.

Work
style
reformDatalinking

Resilience(i) Make it possible to reduce the burden on teaching staff and school
officials working inside and outside the school, as well as on members of
the education boards, and support the acceleration and activation ofcommunication through active use of the general-purpose cloud tools.

This can be tackled by utilizing
GIGA terminals and the existing
network environment.

(ii) Develop an environment offering connection to the schoolaffairs/learning systems from anywhere and allow flexible and safe work
styles tailored to the individual needs of teaching staff

Integration of schoolaffairs/learning networks(iii) Allow low-cost and real-time integration of data owned by school affairs
system and the learning system.

Cloud migration of schoolaffairs support system(iv) Support the sophistication of school management, educationalguidelines and education policies by visualizing various kinds of data in an
integrated way by using the dashboard function.

Creation of data linkage
platform (dashboard)(v) Allow securing operation continuity even in the event of a large-scaledisaster.

Cloud migration of schoolaffairs support system

Maintenance
Maintenanceofofsecurity
security
is essentialfor
implementation
in a safe andreassuring way.

Source: Created by the Company based on https://www.mext.go.jp/b_menu/shingi/chousa/shotou/175/mext_01385.html

46

Copyright © Digital Arts Inc.

School Affairs DX

Development Schedule
Security measures in school affairs DX will start from FY2024,
aiming to bring the system into operation in FY2025.
◆ Schedule for introduction/renewal of integrated school affairs support systems
Fiscal year

FY2025

Number ofmunicipalities(17.5%)

317

FY2026FY2027319

216(17.6%)(11.9%)FY2028FY2029380353(20.9%)(19.4%)

No plans to
introduce, etc.

230(12.7%)◆ Example of schedule for environmental development aimed at the next-generation school affairs DX
System procurement will begin in 2024
FY2022

FY2023

FY2024FY2025

FY2026FY2027Development of model case
Drafting of the next-generation school affairs DX guideline (provisional name), etc.

Local governments
scheduled to
introduce/renew thesystem in FY2025
Local governments
scheduled to
introduce/renew thesystem in FY2026

Consideration
at the expert
meeting

Consensus formation
Specification formulation
Budget request

Procurement contract
System design/construction
Trial operation

Steady implementation of transitional initiatives
Consensus formation
Specification formulation
Budget request

Next-generation
system operation
Procurement contract
System design/construction
Trial operation

Steady implementation of transitional initiatives

Next-generation
system operation

Source: Ministry of Education, Culture, Sports, Science and Technology "Results of a survey on computerization of school affairs (as of September 2022)"
https://www.mext.go.jp/content/20230308-mxt_jogai01-000027984_001.pdf

47

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

06

Full-Year financial Forecast for
the Fiscal Year Ending March 2024

48

Copyright © Digital Arts Inc.

Forecasts for Fiscal Year Ending March 31, 2024 (Consolidated)
Expand existing businesses and develop new businesses with the aim of increasing net sales and profit(Million yen)
FY March 2023
Full-Year Results

FY March 2024
Full-Year Forecasts

Change% Change

Net sales

10,436

11,500＋1,063＋10.2 %

Cost of goods sold

3,666

3,850

＋183

＋5.0 %

Gross profit

6,769

7,650

＋880

＋13.0 %

Gross profit margin

64.9％

66.5％

-

-

Selling, general andadministrative expenses

2,356

2,500

＋143

＋6.1 %

Operating profit

4,413

5,150

＋736

＋16.7 %

Operating margin

42.3%

44.8％

-

-

Ordinary profit

4,429

5,150

＋720

＋16.3 %

Profit attributable to ownersof parent

3,062

3,550

＋487

＋15.9 %

49

Copyright © Digital Arts Inc.

Forecasts for Fiscal Year Ending March 31, 2024 (Non-consolidated）
Expand existing businesses and develop new businesses with the aim of increasing net sales and profit(Million yen)
FY March 2023
Full-Year Results

FY March 2024
Full-Year Forecasts

Change% Change

Net sales

8,984

10,000＋1,015＋11.3 %

Cost of goods sold

2,425

2,650

＋224

＋9.3 %

Gross profit

6,559

7,350

＋790

＋12.1 %

Gross profit margin

73.0％

73.5％

-

-

Selling, general andadministrative expenses

2,163

2,350

＋186

＋8.6 %

Operating profit

4,395

5,000

＋604

＋13.7 %

Operating margin

48.9％

50.0％

-

-

Ordinary profit

4,407

5,000

＋592

＋13.4 %

Profit

3,048

3,450

＋401

＋13.2 %

50

Copyright © Digital Arts Inc.

Status of Consolidated Net Sales
Consolidated net sales are forecast as follows:
Consolidated Forecast• Net sales that will be carried over to andposted for the fiscal year in question
will increase given an increase in thenumber of contracts acquired inprevious fiscal years in connection with
the GIGA School Concept in the public
sector market.

(Million yen）

• New DAJ contracts are expected toamount to 9,385 million yen following
measures to expand sales of new
functions and new products for theenterprise sector market and public
sector market, together with strategic
sales measures.
*1：DAJ = Digital Arts Inc.
*2：DAC＝ Digital Arts Consulting Inc.
*3：Sales recorded from the order backlog of contracts acquired in previous fiscal years*4：Sales deferred to subsequent fiscal years (order backlog)

51

Copyright © Digital Arts Inc.

Status of Consolidated Net Sales
Consolidated net sales by market are forecast as follows:
Forecast by Market
11,50010,436433(+10.2%)456

Consumer

＋7.2％

5,022

公共

＋13.3％

5,316

Results for FY March 2023

6,021

In response to corporate needs for total
security solutions, we will enhance theproduct lineup in order to attract newclients.

•

Net sales that will be carried over to andposted 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.

•

The market share in GIGA School Concept
projects will increase and solidify security
for local governments to expand sales.

(Million yen）

＋5.3％

4,686

•

企業

Forecast for FY March 2024

52

Copyright © Digital Arts Inc.

Consolidated Cost of Goods Sold and Selling,
General and Administrative Expenses
Labor costs, communication expenses and personnel expenses are expected toincrease after the release of the new products/new functions.

(Million yen)

Results for
FY March 2023

Forecast for
FY March 2024

Change YoY

3,666

3,850

+5.0%

Labor

1,634

1,980

+21.1%

Increase in number of DAJ's development personnel.

Depreciation

838

910

+8.5%

Increase in depreciation of software for cloud products.

Communication
expenses

1,162

1,230

+5.8%

An increase in cloud server expenses as a result of the
expansion of sales of cloud service products and an increasein the number of licenses.

Other

895

770

△14.1％

A decrease in outsourcing expenses following a shift ofengineering operations outsourced by DAC to internal
operation.

Transfer to other accounts△865△1,040+20.1%

Selling, general andadministrative expenses

2,356

2,500

+6.1%

Personnel expenses

1,193

1,310

+9.7%

An increase in the number of personnel due to therecruitment of new graduates.

Advertising expenses

297

310

+4.1%

Advertising in newspapers and other media will increase.

Other

865

880

+1.7%

An increase in travel and transportation expenses as the
COVID-19 pandemic fades.

Cost of goods sold

53

Main Factors for Change

Copyright © Digital Arts Inc.

Status of Consolidated Cost of Goods Sold
The increase in DAJ’s development personnel will lead to a rise in labor expenses.
Cloud server expenses (communication expenses) will grow with the expansion of salesof cloud service products and an increase in the number of licenses.
Status of Consolidated Cost of goods sold(Million yen)54

Copyright © Digital Arts Inc.

Status of Consolidated Cost of Goods Sold
Personnel expenses will surge due to an increase in the number of staff after new graduates employees
joined the Group.
Travel and transportation expenses as well as entertainment expenses (as part of Other) will increase as
the COVID-19 pandemic fades.
Status of Consolidated Selling, General and Administrative Expenses(Million yen)55

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results
for the First Half of the Fiscal Year Ending March 31, 2024

07

Return to Shareholders for the
Fiscal Year Ending March 31, 2024

56

Copyright © Digital Arts Inc.

Return to Shareholders for the Fiscal Year Ending March 31, 2024

We are planning to pay dividends as follows to return a portion of ourearnings to our shareholders.
 Target payout ratio for fiscal year ending March 31, 2024: 31.6%
 Annual dividends of surplus forecasted for fiscal year ending March 31, 2024:
80.00 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-endYear-end

AnnualFY March 2023

35.00

40.00

75.00

34.4％

FY March 2024

40.00
40.00

80.00

31.6％

FY March 2024 (forecast)

Treasury shares will be purchased using a flexible approach, with a focus on returns
to shareholders while taking into consideration trends in business performance andstock market movements.
57

Copyright © Digital Arts Inc.

Notes on Descriptions
Among the descriptions of plans, strategies and financial forecasts in this presentation material, thosethat are 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 environmentand other 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 Anti-Virus & Sandbox, i-FILTER@Cloud Anti-Virus & Sandbox, i-FILTER@Cloud Dアラート発信レポートサービス, info board,
Active Rating System, D-SPA, Anti-Virus & Sandbox for D-SPA, NET FILTER, SP-Cache, White Web, ZBRAIN, クレデンシャルプロテクション, ホワイト運用, m-FILTER, m-FILTER
MailFilter, m-FILTER Archive, m-FILTER Anti-Spam, m-FILTER Anti-Virus & Sandbox, m-FILTER@Cloud Anti-Virus & Sandbox, m-FILTER@Cloud Dアラート発信レポートサービス,
m-FILTER File Scan, Mail Detox, m-FILTER EdgeMTA, EdgeMTA, FinalCode, i-フィルター, DigitalArts@Cloud, Desk, Desk Event, StartIn, f-FILTER, Dアラート, Dコンテンツ,
f-FILTER and other logos and icons related to Digital Arts Inc. and its products are trademarks or registered trademarks of Digital Arts Inc.

58

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