Consolidated Financial Results for the First Three
Quarters of the Fiscal Year Ending March 31, 2023
(From April 1, 2022 to December 31, 2022)
Financial Results Briefing Materials
January 31, 2023

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 Three
Quarters of the Fiscal Year Ending March 31, 2023

Consolidated Results Highlights

3

Copyright © Digital Arts Inc.

Consolidated Results Highlights

Contracts

Net sales

Operatingprofit

7,043million yen• In the enterprise section market, the Group won new projects byoffering a new optional function to meet security needs, and DAC
maintained steady growth.

(up +578million yen or +8.9%
year on year)• In the public sector market, orders from public agencies and local
governments remained strong, despite a reactionary fall from thepeak of new GIGA School Concept projects.

7,658million yen• Net sales increased in the enterprise sector market due to growth insales of cloud service products, reflecting an increase in contracts for
those products and growth in new customers for DAC.

(up +971 million yen or +14.5%
year on year)• In the public sector market, orders received from public agencies andlocal governments grew significantly, in addition to posted sales of
GIGA School Concept projects.

3,228million yen• In cost of sales, server expenses increased due to growth inlicenses for cloud service products.

(up +203 million yen or +6.7%
year on year)• SG&A expenses were affected by an increase in advertisingexpenses, including press advertising, and an increase in hiring
expenses after DAC increased consultants.

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Copyright © Digital Arts Inc.

Consolidated Results Summary(Million yen)First 3 Quarters
FY March 2022

First 3 Quarters
FY March 2023

FY March 2023 FullYear Forecast

Change YoY

Contracts

6,465

7,043

8.9%

Net sales

6,686

7,658

14.5%

10,500

Cost of goods sold

1,940

2,651

36.7%

3,350

Gross profit

4,746

5,006

5.5%

7,150

Selling, general andadministrative expenses

1,721

1,778

3.3%

2,450

Operating profit

3,024

3,228

6.7%

4,700

Operating margin

45.2%

42.2%

Ordinary profit

3,027

3,241

7.0%

4,700

Profit attributable toowners of
Parent

2,081

2,235

7.4%

3,250

EBITDA

3,736

3,966

6.1%

-

44.8%

-

-

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

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Copyright © Digital Arts Inc.

Trend in Consolidated Contracts
Consolidated contracts totaled 7,043 million yen, up +8.9％ year on year.
Trend in Contracts(Million yen)

Cloud service products•

Contracts for both cloud services and license
sales increased year on year.

•

Contracts for cloud service products declined
due to a fall in GIGA School Concept projects inthe public sector market after penetration, which
was more than offset by steady orders for new
projects received in the enterprise sector market,
resulting in a 15.8％ increase.

•

In the category of license sales products and other,
the reactionary fall from a large government officeproject in the public sector market in the previous
fiscal year was more than offset by receiving local
government projects and the steady growth of themarket for enterprises, resulting in a 6.2％ increase.

Licence sales products/others

7,043

6,465

+8.9%

28.8％

1,864

+15.8%

71.2％

4,601

First 3 Quarters
FY March 2022

＋6.2%

2,158

30.7％

4,884

69.3％

First 3 Quarters
FY March 2023

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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(Million yen)•Contracts for cloud service products

GIGA School Concept projects

Cloud service products

License sales products/Others

7,043

increased 34.4% (938 million yen in the

1,000

previous fiscal year and 1,261 million yen in

6,465
1,024
938

+34.4%

the fiscal period under review) excluding

1,261

the impact of GIGA School Concept projects(1,024 million yen in the previous fiscal year
5,441
4,503

and 1,000 million yen in the fiscal year

6,043

+6.2%

under review).

4,782

•

Contracts for cloud service products
increased, reflecting growing demand forFirst 3 Quarters

First 3 Quarters

FY March 2022

FY March 2023

security in the cloud environment primarily
in the enterprise sector market.
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Trend in Order Backlog
Sales of GIGA School Concept projects were posted, and orders for cloud service
projects increased.
•

Trend in Order Backlog

New contracts for GIGA School Concept projects, manyof which are five-year contracts, have run their course(Million yen)

Sales recorded for the following fiscal year and later

as a result of the widespread use of learning

Sales to be recorded in the next quarters (4Q)

terminals*, and sales of GIGA projects will decline

6,190

from the next fiscal year. The projects will be moving

5,945

to a contract renewal phase gradually.
•

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

5,363

△7.1%

4,981

•

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

Contract amount is recorded as sales on a pro rata basis, split into equalmonthly amounts, over the contract period. As a result, the longer the contract

period, the larger the contract amount that is deferred (order backlog).

827+16.5%End of 3Q FY March 2022•

963

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 3Q 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

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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

500

500

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
Net sales and Operating profit reached a new record highfor the third quarter.
1Q

2Q

3Q

※ 10,500(Million yen)

9,051

4Q

2,843
2,364
6,825

5,839

2,573

5,639

1,674

1,500

1,402

1,376

2,074

2,134

※4,700
4,126

1,649

1,546

2,627
954

2,326

1,514

740

1,249

OperatingprofitFY March 2019683

Net sales

OperatingprofitFY March 2020

2,632

825

1,413

1,348

1,919

OperatingprofitFY March 2021

Net sales

OperatingprofitFY March 2022

1,473
980

2,386

1,238

1,009

731

485
Net sales

2,698

945

663

413

295
Net sales

679

1,101

1,004

1,687

551

638
1,217

2,977

Net sales

OperatingprofitFY March 2023

*Full-year consolidated financial forecast announced on May 10, 2022

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Consolidated Cost of Goods Sold and Selling, General and
Administrative Expenses(Million yen)First 3 Quarters
FY March 2022

First 3 Quarters
FY March 2023

Change
YoY

1,940

2,651

+711

1,090

1,158

+67

Depreciation

627

629

+2

Communication
expenses

495

850

+354

Other

494

657

+163

△768

△644

+123

Selling, general andadministrative expenses

1,721

1,778

+56

Personnel expenses

1,032

899

△132

Advertising expenses

169

230

+60

Other

519

648

+129

Cost of goods sold

Labor

Transfer to otheraccounts

12

Main Factors for Change

DAC increased consultants
Reactionary fall from the large amount of bonuses paid in
the previous fiscal year

Cloud server expenses rose as a result of sales
expansion of cloud products.

Reactionary fall from the large amount of bonuses paid in
the previous fiscal year
Increase due to and press advertising.
Hiring expenses swelled after DAC increased consultants.
Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Cost of Goods Sold
・Labor expenses swelled after DAC increased consultants.
(Million yen)

・Cloud server expenses rose as a result of sales expansion of cloud products.
The business entered the phase of a decrease in new contracts for GIGA School Concept projects
1,204
and growth in expenses gradually decreases.
1,102
242 220
946
793
723

609
110
34

183

622
121

175

141

237

60

179
210

87

427
262

254

1Q

2Q

164
321

225

173
220

158

247
170

226

201

222
324

223

213

244

280

221

202

169

206

206

324

349

332

3Q

4Q

1Q

FY March 2021

427

2Q

330

349

354

3Q

4Q

1Q

FY March 2022

13

901

983

766

736

701

624

613

584

486

217

214

204

202
447

153

962

208

45
198

203

151

839

921

989

373

430

2Q

3Q

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.

(Million yen)

Personnel expenses
Advertising
other

660
609

574
501

499

169
191

153

195
161
32

44

1Q

159

193

59
58

77

51

70

277

263

3Q

4Q

214
204

74

78

432
301

218

2Q

229

59

166

34
272

558

526
487

485

414

609

3Q

FY March 2021

262

4Q

323

1Q

2Q

FY March 2022

14

302

280

1Q

2Q

316

3Q

FY March 2023
Copyright © Digital Arts Inc.

Summary of Consolidated Balance Sheet
The financial health continued to improve, with an equity ratio of 67.1%.
(Million yen)

As of end of 3Q
FY March 2022

As of end of
FY March 2022

As of end of 3Q
FY March 2023

Change from end
of FY March 2022

15,95917,105

17,631+3.1%

14,255

15,773

16,072

+1.9%

2,274

2,236

2,209

△1.2%

18,233

19,341

19,840

+2.6%

6,857

7,130

6,442

△9.7%

Advanced received

5,644

5,684

5,326

△6.3%

Non-current liabilities

50

50

50

△0.1%

Equity capital

11,297

12,12913,314+9.8%

Net assets

11,325

12,15913,347+9.8%

Equity ratio

62.0%

62.7%

67.1%

-

ROE

19.5%

26.2%

17.6%

-

ROA

12.6%

17.0%

11.4%

-

Current assets
Cash and deposits
Non-current assets
Total assets
Current liabilities

15

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

Non-consolidated Results Highlights

16

Copyright © Digital Arts Inc.

Summary of Non-consolidated Results(Million yen)First 3 Quarters
FY March 2022

First 3 Quarters
FY March 2023

Change YoY

FY March 2023
Full-Year Forecast

Contracts

5,706

5,978

+4.8%

-

Net sales

5,928

6,593

+11.2%

9,000

Cost of sales

1,312

1,769

+34.8%

2,150

Gross profit

4,615

4,824

+4.5%

6,850

Selling, general andadministrative expenses

1,635

1,629

△0.3%

2,250

Operating profit

2,980

3,194

+7.2%

4,600

Operating margin

50.3％

48.5%

Ordinary profit

2,986

3,202

+7.2%

4,600

Profit

2,063

2,213

+7.3%

3,200

51.1%

-

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

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Material on Consolidated Financial Results for the First
Three Quarters 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(Million yen)

7,043(+8.9%)

6,465

△2.3%

327

•

In the enterprise sector market, in addition to
growth in contracts for cloud service products in
response to a rise in demand for cloud services, thecontract amount rose 586 million yen or 18.2% due
to increased orders received resulting from theadditional functions of i-FILTER and m-FILTER
series, new contracts that the Group won byimplementing a sales promotion strategy with tospecific targets, and the growth of DAC.

•In the public sector market, the contract amountdecreased 1 million yen, or 0.0%, after meeting
demand for GIGA School Concept projects for thetime being despite growth in orders received frompublic agencies and local governments.

Consumer

335
2,911
2,913

3,217

Public△0.0%+18.2%First 3 Quarters
FY March 2022

3,804EnterpriseFirst 3 Quarters
FY March 2023

19

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Consolidated Net sales by Market
Trend in Consolidated Net Sales byMarket(Million yen)

7,658(+14.5%)

6,686

327

Consumer

3,482

Public•In the enterprise sector market, net sales forcloud service products increased due to a risein contracts in response to growing demand forcloud services, in addition to growth based on
new customers for DAC, resulting in an increaseof 515 million yen (15.5%).

•

In the public sector market, net sales rose 456
million yen, or 15.1%, reflecting a high volumeof orders received for the projects of publicagencies and local governments, in addition toposted sales of GIGA School Concept projects
that had continued since before the previous
fiscal year.

+０.1%

327

+15.1%

3,026

3,332

+15.5%First 3 Quarters
FY March 2022

3,847

EnterpriseFirst 3 Quarters
FY March 2023

20

Copyright © Digital Arts Inc.

Trend in Consolidated Net Sales by Market(Million yen)

Net sales for three quarters reached a record high, bolstered by strong
performances in the enterprise sector and public sector markets.

7,658
327

Consumer

3,482

Public

6,686
327

4,750

2,747
1,975
223
769

2,124
266
750

2,325
265

248

3,518

3,551

254

271

4,166

4,141

377

345

3,026

1,623
1,655

1,523

323

1486

1,247

1,014

826

1,483

1,740

2,031

2,134

2309

2,804

3,332

Enterprise

3,847

982

1,108

1,233

FY 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

3Q

3Q

3Q

3Q

3Q

3Q

3Q

3Q

3Q

3Q

3Q

21

Copyright © Digital Arts Inc.

Quarterly Trend in Consolidated Net Sales by Market
Net sales for the three quarters reached a record high, bolstered by strong(Million yen)

performances in the enterprise sector and public sector markets.
2,698

2,632

118

115

2,134

2,074
109

1,687
1,514
1,249
140

114

1,500
1,376

104

103

115

116

2,573
103

Consumer

1,195

Public

1,310

1,274

Enterprise

2Q

3Q

105

98
1,269

1,313

785

100

90
587

1,413

1,919
113

1,649

2,364

2,386

1,020

1,017

1,227

1,262

4Q

1Q

974
738

597

426

574

451

515

383

1,179
725

1Q

975

813

770

2Q

3Q

FY March 2020

4Q

847

1Q

985

971

2Q

3Q

4Q

1,067

1Q

1,204

2Q

1,060

3Q

FY March 2022

FY March 2021

22

FY March 2023
Copyright © Digital Arts Inc.

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

Enterprise Sector

23

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Net Sales in Enterprise Sector Market by Product
Functions were added to products and cooperation
with agencies were strengthened in response to more
frequent, diverse cyber attacks.

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

m-FILTER series

FinalCode

DAC

other
(Million yen)

3,847(+15.5%)

7

3,332
2

•

+40.0%

1,057

Sales of the i-FILTER series remained strong, rising 90 million yen, 5.0%, in

response to growing corporate demand for cybersecurity.
•

Sales of the m-FILTER series remained solid, owing to rising demand foremail security and PPAP problem-solving.

755
142

+38.2%

197

642

+9.9%

705

(+63 million yen or +9.9％)•

Sales of the FinalCode series remained strong, meeting demand for
responses to PPAP and the revised Act on the Protection of Personal
Information.

1,789

+5.0%

1,879

(+54 million yen or +38.2％)•

DAC made good progress acquiring new clients and achieved substantial
sales growth (up 302 million yen or 40.0%), reflecting growing DX needs andFirst 3 Quarters

First 3 Quarters

FY March 2022

FY March 2023

demand for security measures among enterprises.
24

Copyright © Digital Arts Inc.

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

Number of consultants(Persons)

Security consulting sales*

648(Million yen)

98

434

IT strategy consulting sales*(Million yen)

295

320

65

End of FY March

End of 3Q FYFirst 3 Quarters

First 3 Quarters

First 3 Quarters

First 3 Quarters

2022

March 2023

FY March 2022

FY March 2023

FY March 2022

FY March 2023

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

Offering comprehensive services
including security checkups and analysis,
proposals of measures and solutions forraising the security level and support for
implementation

DAC proposed initiatives and solutions
to promote DX at customers inconsideration 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
Three Quarters 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

FinalCodeother(Million yen)

•

3,482

5

48

352

Concept projects that had continued since(+15.1%)

3,026

13

+26.4%+88.8%In addition to posted sales of GIGA School

before the previous fiscal year, contracts gained

61

from public agencies and local governments

665

increased and sales of the i-FILTER series
remained strong, which offset a reactionary fallfrom large projects contracted by government

offices in the first half of the last fiscal year.
2,619

+4.7%

2,741

（+122 million yen or ＋4.7%）•

Brisk orders were received from local

governments and sales of the m-FILTER series
leaped (+313 million yen or +88.8%).
First 3 Quarters
FY March 2022

First 3 Quarters
FY March 2023

27

Copyright © Digital Arts Inc.

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

Share of charged filtering introduced

Not yetintroduced,etc.
Competitors

24%(Less than 10 companies)
45%

i-FILTER
55%

Charged filtering
already introduced

76%•• i-FILTER's share grew from 51% at theend of the previous fiscal year to 55%.

The proportion of Boards of Education
which have adopted paid-for filtering
increased from 73% at the end of theprevious fiscal year to 76%.

• Cumulative contracts reached 7.9 billion
yen at the end of the third quarter from 6.9
billion yen at the end of the previous fiscal
year.

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

28

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First
Three Quarters 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 ProductFor mobile terminals,otherFor computers

327(Million yen)

327

146

181

First 3 Quarters
FY March 2022

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

(+0.1%)

＋8.5%

△6.7%

158

• Revenue from contract developmentof products for mobile terminals for
carriers decreased despite anincrease in the number of users.

169

First 3 Quarters
FY March 2023

30

Copyright © Digital Arts Inc.

Material on Consolidated Financial Results for the First Three Quarters 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

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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 forthe fiscal year in question will increase given an
increase in the number of contracts acquired inprevious fiscal years in connection with the GIGA
School Concept in the public sector market.

•

New contracts of DAJ are expected to amount to8,400 million yen after measures to expand sales of
new functions and strategic sales measures for theenterprise sector market and the winning of projects
to improve the resilience of municipal information
systems in the public sector market.

•

As in the previous fiscal year, DAC will increase thenumber of consultants and is expected to continue
growing through the 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, we will enhance the product lineup andimprove links with other companies' products in order
to attract new clients.

444•

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

•

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

•

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

+12.4%
4,046

4,559

+20.6%

Results for FY March
2022

5,500

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

Communicationv
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 Three Quarters 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.

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.

(1) Mounting Needs for Comprehensive Security

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

Advertising video for Anti-Virus & Sandbox

Digital Arts online seminar

The Nikkei: posted on Aug. 23, 2022

Raising brand recognition and winning contracts using the media such as The Nikkei
newspaper and through promotion activities using videos and online seminars.
43

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

44

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 meansother than e-mail and connection to websites.
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＋The i-FILTER functions were partially released on May 10 as a threatening URL block* 2
option of m-FILTER.
*1: The number of reports on damage due to malware infections from users of i-FILTER Ver. 10, m-FILTER Ver. 5, i-FILTER@Cloud and m-FILTER@Cloud as of Dec 2022 (Source: Digital Arts)*2: This option currently provided was formerly branded as URL category identification.

45

Copyright © Digital Arts Inc.

(2) Measures against Malware Infections
The tie-up option of m-FILTER@Cloud and the file transfer solution, Crypto-bin for mFILTER@Cloud, was launched to help reduce the risk of information leaks duringtransmission and the risk of attacks during reception.
Attachments can be obtained from
URL provided in a separate email
message.

Automatically separates text andattachments

Eliminate PPAP with the guest user
login function.
account authorization
Guest User Login Page

Body of mail
Body of mailAccount
Authentication

Body of mail

Crypto-bin

Download URL

Attached file
m-FILTER@Cloud automatically separates
email text and attachments.

Attached file

Crypto-bin

Attached file

Download URL

The text is directly sent to the recipient and theattachments can be downloaded from URL
provided in a separate email message.

46

The guest user login function of encrypted email
allows file acquisition through accountauthorization in place of a password.

Copyright © Digital Arts Inc.

(2) Measures against Malware Infections
The Group offers the D Alert Reporting Service*1. It swiftly detects malware threats that are daily becoming
ever more diverse and sophisticated, and provides information on clear measures to cope with them.
It offers a low-cost solution to medium- and small-sized businesses for whom it is difficult to set up an
expert organization detecting and responding to incidents due to resources constraints, although it isincreasingly significant and in growing demand.
Collection and analysis

Automatic assessmentof access logs

Security Research Lab

D Alert Report
distributed

D Alert Reporting System

Customer (administrator)

The D Alert Reporting Service is set to be released on February 13, 2023 on m-FILTER@Cloud, in addition to
i-FILTER@Cloud. The Group will widen the range of services it offers to better respond to needs for total
security.
*1: D Alert is a cyber-risk information service offered by Digital Arts.

47

Copyright © Digital Arts Inc.

Progress of Measures in Fiscal Year under Review
Mounting needs forcomprehensive security

(1)
(1)

(2)
(2) Measures against malware infections
Malware threats are intensifying due todiversification and sophistication of
cyberattacks from rampant ransomware,
Emotet and other malware.

Diversification of cloud services and the spread of
remote working and home learning meant anincrease in ICT assets that need to be protected andexpansion of the domain of security threats.

•

Link between i-FILTER, m-FILTER and FinalCode to combat infections and data theft•Anti-Virus & Sandbox as a new functional option (launched in May 2022)•

Link between m-FILTER and Crypto-bin to combat the practice of sending a zipped file attachment

and a separate e-mail message with password (launched in September 2022)•

D Alert Reporting Service as a measure against malware infections(Released on i-FILTER in December 2022 and to be released on m-FILTER in February 2023)

After organic growth and the release of Anti-Virus & Sandbox, the Company earned net salesof 162 million yen by the end of the third quarter. The figure has already surpassed the targetof 55 million yen in connection with the next-generation Secure Web Gateway (SWG) in theMedium-Term Management Plan and is continuing to rise steadily.
48

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

49

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.
(For reference) Illustration of introduction of Digital Arts
solutions in environments with separation of the threelayers (α model, β model and β’ model)

Security monitoring

Municip
alities

Municipal information security
cloud (prefectural government
offices)

Anti Spam

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)

Block 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
systemCannot 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.
50

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

Win projects by holding seminars for medical institutions and other approaches* Source: Ministry of Health, Labour and Welfare: Information Security Training Material (for medical professionals)

https://www.youtube.com/watch?v=3YkicqCSQUA

51

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

December 2022

35%
Not yetintroduced
未導入

6%

6%

Free無償ﾌｨﾙﾀﾘﾝｸﾞ
filtering

無償ﾌｨﾙﾀﾘﾝｸﾞFreefiltering

13%

15%

DNS filtering

DNSﾌｨﾙﾀﾘﾝｸﾞ
14%

33%

Not yet未導入
introduced

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

有償ﾌｨﾙﾀﾘﾝｸﾞ
Pay filtering

introduced
導入済み

79％

81%

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

52

Copyright © Digital Arts Inc.

Progress of Measures in Fiscal Year under Review(3)

Strengthening security measuresfor public institutions(4)

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

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

•

Combine i-FILTER, m-FILTER and FinalCode to meet
local governments’ guidelines of countermeasures•

Respond to the policy of toughening guidelines in the
medical industry•

Cumulative contracts for security cloud services reached
510 million yen at the end of the third quarter from 319
million yen at the end of the previous fiscal year.

•

Cumulative contracts for Enhancement of resilience ofmunicipalities reached 1,518 million yen at the end of thethird quarter from 704 million yen at the end of theprevious fiscal year.

Enhancing security measuresfor GIGA School devices•

Shift of some boards of education which had
introduced free or DNS filtering to paid filtering• i-FILTER's share grew from 51% at the end of theprevious fiscal year to 55%.
•

Cumulative contracts reached 7.9 billion yen at the endof the third quarter from 6.9 billion yen at the end of theprevious fiscal year.

*For details, see pages 28 and 52.
53

Copyright © Digital Arts Inc.

Penetration of "White Operation"
Trend in i-FILTER v10 and m-FILTER
v5 Licenses Used
12,00011,811

Realizing safe office IT environments
protected through "White Operation"(Thousand licenses)

10,022
7,958

4,665
3,604

The number of licenses for both i-FILTER and m-FILTER
has been steadily increasing in the enterprise-sector andpublic-sector markets.
We will broaden the product lineup and step up
collaboration with other companies to further encourage
the take up of White Operation.

March 2019

March 2020

March 2021

March 2022 December 2022 March 2023

54

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 2,186 reports for the current fiscal year. It notifies customers on a real-time basis tourge them to take security measures.

55

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

QuickStart service✓

This service offers operation and maintenanceconcerning Digital Arts products.

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

Started providing
Started providing

56

To be provided

Copyright © Digital Arts Inc.

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

Return to Shareholders for Fiscal
Year Ending March 31, 2023

57

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
2Q-endFY March 2022

30.00

FY March 2023

35.00

Year-end

FY March 2023

Consolidated
payout ratio
Annual

40.00

70.00

33.9％

40.00

75.00

32.4％

(forecast)
58

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.

59

Copyright © Digital Arts Inc.

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