Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima*	The company initially announced
its FY12/15 results on February
12, 2016. It announced partiallyamended results on February 24.
The figures in this report are theamended results.

伪伪Sales of Cloud Services to Grow About 40% YOY,
Greatly Expanding Profits
V-cube, Inc. <3681> offers visual communication services, primarily web conferences and web
seminars (webinars) using cloud platforms. Addressing the market derived from a change in workstyles, the company has provided a wide range of product lines to meet user’s needs, including for
online sales support and distance learning, and other functions. Its business in Japan and other
Asian countries has grown rapidly. To achieve further growth, the company aims to penetrate thesocial infrastructure market.
In the fiscal year through December 2015, i.e., in FY12/15, the company’s consolidated net
sales increased 30.0% year on year (YOY) to ¥6,083mn, its operating income declined 13.7% to¥348mn, its ordinary income fell 69.8% to ¥179mn, and its net income dropped 64.2% to ¥93mn.
Cloud services and appliances led sales growth, but the cost of sales increased, due mainly tolarger purchases of appliances. Furthermore, SG&A expenses expanded YOY due to aggressive
investment in sales activity. These cost increases led to the decline in operating income. In the nonoperating income account, the company suffered foreign exchange valuation losses, mainly on loans
extended to its consolidated subsidiaries overseas. These losses, combined with the fall in operating
income, resulted in the drop in ordinary income. However, the company had planned the increased
investment in sales activity from the start of the year, and it foresees foreign exchange gains orlosses hereafter due to significant changes in exchange rates.
For FY12/16, the company projects a 39.7% YOY rise in net sales to ¥8,500mn, a 141.2% upturnin operating income to ¥839mn, a 329.5% jump in ordinary income to ¥771mn, and a 594.2% surge
in net profit attributable to owners of parent. It expects these growth rates to result from its heavy
investment in sales activity through FY12/15. It foresees particularly large income growth in thesecond half of the fiscal year, which seems plausible, as sales of appliances are concentrated in thesecond half and the company’s core business is cloud based.
The company has announced the first Midterm Strategy for the growth of its group of companies. This
plan is intended to achieve the company’s basic goal of becoming the No. 1 Visual Communication
Platform in Asia, and it adds three other objectives: deepening influence in change of work-style,providing social infrastructure, and further overseas business expansion with a focus on Asia. Thereis still ample room for development in both the Japanese and overseas markets, and the company’s
progress on these strategies will be watched by many. The government’s “regional revitalization” and.work life balance promotion” policies are also likely to work in the company’s favor.

伪伪Check Point• Mainstay cloud services business expanding steadily, driving increases in sales and profits• Room to develop potential markets, strengthening of partner strategy and industry specificservices• Accelerating provision of services as a platform to drive rapid business expansion

We encourage readers to review our complete legal statement on “Disclaimer” page.
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V-cube, Inc.
3681 Tokyo Stock Exchange First
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11-May-16

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Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima㻜㻟㻞㻲㼅㻝㻞㻛㻝㻝

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伪伪Corporate Overview
Listed on TSE mothers in December 2013, designated on TSEFirst Section in July 2015
(1) History
Representative director and president Naoaki Mashita started V-cube Internet, Ltd. when he was astudent at Keio University, as a company to provide web solutions. This company was the predecessor
to V-cube, Inc., subsequently receiving an investment from Keio University and changing its
business line and name to reach its current form. Today, the company’s mainstay business is visualcommunications, centered on web conferencing. The company is expanding its operations with thegoal of becoming No. 1 in Asia in this business. The company’s stock was listed on the Tokyo Stock
Exchange Mothers market in December 2013, and subsequently changed to Tokyo Stock ExchangeFirst Section in July 2015.
History
October 1998 V-cube Internet established as a private limited company providing web solutions
January 2001 V-cube Internet incorporated and changed its name to V-cube Internet, Inc.
March 2002 Capital alliance formed with Keio University
December Changed name to V-cube, Inc.
2002
April 2003 V-cube USA, Inc. established in Los Angeles, California to penetrate the US market.
December V-cube Malaysia Sdn. Bhd. established in Kuala Lumpur to develop and expand business in2009Southeast Asia
January 2012 Established V-cube Global Services Pte. Ltd. (formerly V-cube Singapore R&D Centre Pte. Ltd.)to strengthen R&D
July 2012 PT. V-CUBE INDONESIA established in Jakarta
May 2013 V-cube Global Operations Pte. Ltd. established to lay the infrastructure for V-cube to provide its
services worldwide
August 2013 To facilitate business expansion in China, BRAV International Ltd., together with its subsidiary,
V-cube Tianjin Information Technology Co., Ltd. (formerly Tianjin BRAV World Information
Technology Co., Ltd.), were made consolidated subsidiaries
August 2013 V-cube Singapore Pte. Ltd. (now a consolidated subsidiary) established as a sales unit
December IPO. V-cube’s shares listed on the Tokyo Stock Exchange Mothers market.
2013
May 2014 PioneerVC Corp. (formerly Pioneer Solutions Corp.) made a consolidated subsidiary.
July 2015 Shares listed on the Tokyo Stock Exchange First Section.
October 2015 Established V-cube Robotics Japan Inc. to improve sales to the robot industry
October 2015 Asian holding company V-cube Global Services Pte. Ltd. bought Wizlearn Technologies Pte. Ltd.,the provider of the largest education platform in Singapore, and made it a consolidated subsidiaryto improve services in the areas of education and training
December Acquired iStudy Co., Ltd. (formerly System Technology-i, Co., Ltd.) and made it a consolidated
2015
subsidiary to improve services in the areas of education and training
January 2016 Established V-cube Technical Works, Inc. to strengthen development

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Corporate Overview

Cloud-based services such as web conferencing for corporate
customers are an earnings pillar(2) Business overview

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

The group's business can be described briefly as "provision of visual communication services via theInternet," typically web conference services and webinars. The group's main service is provision ofvisual communication services in a Software as a Service (SaaS) format (monthly fee) using a cloudcomputing platform. The group's business model is outlined below.
●Special characteristics of web conferencing
Telephone and video conferencing have been widely used for some time, mainly by major
corporations. However, the services require special equipment that can only be used at the site of
installation, and the cost of use is relatively high. By contrast, the V-cube group’s web conferencing
service is provided via the internet, so it can be used wherever an internet connection can be made.
Moreover, the service does not require dedicated equipment or terminals; users can simply use
ordinary devices such as PCs, smartphones, or tablets. In other words, the special characteristic of
web conferencing, and its advantage over video conferencing, is that it can be used at a relatively
low price anytime, anywhere, and by anyone.
●Special characteristics of cloud-based businesses
The V-cube group is developing primarily cloud-based services. Basically, barring the case of a large
scale contract cancellation, the net sales of a given upcoming fiscal year tend to be the amount ofsales in final month of the previous fiscal year (in this case, December) × 12 plus the amount of newly
acquired customers. Generally, there are few variable costs and a large portion of added net sales
can usually be added to profit. The special characteristic of cloud-based services is that once thesales exceed break-even point, the profitability increases sharply.
●Revenue sources
Almost all the services provided by the V-cube group are for corporate customers. The only service
for individual customers is an e learning program offered by iStudy (formerly System Technology-iCo., Ltd), which was made a consolidated subsidiary in December 2015. The group’s web conference
service is used by small and medium-sized enterprises, large, listed companies, governmentorganizations, educational facilities, and customers are not biased toward a particular industry. The
monthly fee differs depending on the scale of use (for example, in a wide range from ¥5,000 toseveral hundred thousand yen). Therefore, increasing the number of subscribers and the amountof subscription fees per company (number of subscription ports × subscription port price) increases
the company's net sales (increases earnings). User fixed charges range from ¥11,000 per port permonth.
The range of monthly subscription is wide, and the impact from additions of companies that pay smalluser charges is only slight. The company does not disclose the number of customers, however few
companies cancel their subscriptions once they have subscribed, and most subscriptions appear to
be continuing.
In FY12/15 result, cloud-based services (monthly fees) account for 64.9% of the company's net sales;
however, there are also some customers such as financial institutions who are constrained from using
cloud-based services due to security aspects, and the company provides these customers with anon-premises-type solution using a dedicated server installed within the customers' premises, which isa one-off transactions of service. The price for the on-premises-type solution is apparently equivalent
to around three years' worth of cloud-based fees. Despite being an on-premises-type solution, it
includes an ongoing maintenance agreement, and it is therefore important for the company to build
up the numbers of this kind of customer too.
Furthermore, in addition to the above, the company also sells appliances, including electronic smart
board systems that bundle hardware and software together as a package.
In addition to electronic smart boards for educational facilities, the group sells discussion tables
for corporations and government organizations and the V-CUBE Box video conferencing systemfor corporations. Electronic smart boards and discussion tables are sold mainly by consolidated
subsidiary PioneerVC Corporation (PVC). The V-CUBE Box is sold by all members of the group.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Corporate Overview

V-cube Business Model

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Source: Materials published by V-cube●Main costs
The group's main costs are server and communication line (dedicated line) fees, software development
expenses, operating costs, and the like. It uses external data centers for servers, however some ofthe servers are its own dedicated servers. An increase in customers (usage amount) requires server
enhancement and an increase in server fees to a certain degree; however the ratio of server feesto net sales decreases as the net sales increase further. The situation is similar with communicationline costs, which increase with the increase in net sales, but at a slower rate. In other words, as thecompany's net sales increase past the breakeven point, it will become more profitable.
On the other hand, software development, operating costs, and so forth are up-front investment
components, and may not always change in proportion to net sales. They can therefore temporarily
weigh on profitability improvement depending on the business plan.
In appliances sales, the cost of sales rises proportionately to the increase in net sales. For example,
in the case of electronic smart board systems, the company procures large-size LCD displays andsells them.
The group intends to pursue mergers and acquisitions aggressively. In fact, through FY12/15, itbought some companies and took non-controlling equity stakes in others. Further M&A will dependon circumstances but will represent another cost for the group.

Maintained top market share in the Japanese web conference
market for a ninth consecutive year, with a share of about 30%(3) Industry share, special characteristics, and strengths
Web conferencing service is a software service that does not require advanced technology, so it isfairly easy to enter this market. However, it is difficult to continually increase profits in this business.
The special characteristics and strengths of the V-cube group in this business as described hereafter.
●Strong service lineup
In addition to web conferencing, the group provides online seminars, online support, distance learning,
remote medical diagnosis, online interpretation, and similar services. The fundamental technologies
underpinning these services are the same as for web conferencing, however the company provides
good usability in each field, which has earned it a strong reputation among the users in each field.
Through continuous R&D, the company is gradually winning the advantage over its competitors. Its
special characteristic is that it is able to provide visual communication solutions ("VC solutions") that
go beyond the scope of a simple web conferencing provider.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Corporate Overview

PVC, which became a consolidated subsidiary of V-cube in May 2014, sells electronic smart board
systems. Hereafter, this subsidiary can combine its electronic smart board systems with the group’s
knowhow in web conferencing and online seminars to provide solution services. For example, it
is offering visual collaboration services. The newest of these services is called xSync Prime
Collaboration, under the xSync (By-sync) brand. This service enables high-quality conferences
between overseas facilities, such as plants, similar to the conferences in Japan.

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

In October 2015, the V-cube group acquired Wizlearn Technologies Ptd. Ltd. (Wizlearn), which
operates the largest online educational platform in Singapore, and made the company a consolidated
subsidiary. Wizlearn offers systems to supervise education and online educational material. It
provides these services in Singapore, which leads the world in education through information andcommunications technology for 16 years. More than half of the public schools in Singapore are
introducing the company’s services. These services are highly reliable, so they can be used in thecomputer systems of government organizations. They are also convenient to use because they
connect with business applications that are being adopted worldwide. Therefore, in recent years,
they have been adopted by companies, as well as schools.
In December 2015, the V-cube group made iStudy a consolidated subsidiary. This company offers
its own brand of systems for supervising education to promote corporate education and training,
primarily for large financial institutions. Its main product is a system called iStudy Enterprise Server
for the comprehensive support of personnel development, from skill recognition to the planningand presentation of training programs and the management of attendance at these programs. Thissystem is being used increasingly in Japan.
Through these offerings, V-cube can be expected to develop in distance learning and other services
based on the incorporation of ICT in education, which is expected to expand going forward.
●Overseas (Asia) expansion capability
The V-cube group's services extend beyond Japan. They have developed a service for connecting
overseas data centers in a dedicated network, which is provided in 14 countries centered mainly on
Asia (Japan, China, Singapore, Malaysia, Indonesia, Thailand, Vietnam, Philippines, India, Australia,
US, UK, the Netherlands, and Brazil). The company also provides multi-language localization of its
cloud-based services (Japanese, English, Chinese (simplified and traditional), French, Indonesian,Thai, and Korean), along with an enhanced English-language support center and other measures
for global expansion. Having this infrastructure already established (ahead of competitors) is one of
the group's strengths.
In Asia especially, even if the respective countries have relatively strong internal telecommunication
networks, their inter-country communication environments (international communication lines) areoften unstable, causing frequent disruptions with TV conferences and other such communications
between countries. The company's services solve this issue by using dedicated inter-country lines
to provide a stable communication environment, even between countries, enabling users to use thegroup's web conferencing service with confidence.
The group is also extending its range of services in Asia. The acquisition of Wizlearn contributed tothis goal, raising the group’s presence in Asia and helping it to penetrate the market for education
services or social infrastructure.
●Market share and competition
According to a private market research firm in Japan, the V-cube group has led Japan’s market forweb conferencing for the past nine years and its current market share is about 30%. The group’s maincompetitors are Company C (a large US manufacturer of communications equipment), Company N(the subsidiary of a large Japanese telecommunications company), and Company J (an independent
Japanese manufacturer of communications equipment).
●Providing services as a specialist company
As mentioned above, the group's main competitors are a foreign-owned company and subsidiaries ofmajor Japanese companies. It stands to reason that they may not necessarily be providing services
that meet users' needs. Foreign-owned companies often relocate the services and standards oftheir own countries without adapting them, and do not always meet the needs of Japanese users.
Moreover, most major Japanese corporations do not have web conferencing services as their main
business, and in many cases are not aggressively investing cash, personnel, and other resources inthis field. It is therefore difficult to see how they could be fully meeting customer needs.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■■Corporate Overview

Here, as a specialist in visual communication services centered on web conferencing services, thecompany differentiates itself from other companies in the industry because it can continuously invest
in development, make usability improvements, and so forth to meet customers' needs.

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Furthermore, the group is combining its technology for web conferencing with other technology andknowhow to develop services other than web conferencing in a range of fields. As detailed in thecompany’s Midterm Strategy, described below, these new services address not only markets derived
from a change in work-styles, but they have also recently been directed to the social infrastructure
market. The group appears to be on the leading edge of services for the social infrastructure market.

伪伪Business Trends
Mainstay cloud expanded steadily, driving higher sales andprofits(1) FY12/15 Results●Profit and loss
For FY12/15, total consolidated net sales grew 30.0% YOY to ¥6,083mn, but operating income
weakened by 13.7% to ¥348mn, ordinary income fell 69.8% to ¥179mn, and net income dropped
64.2% to ¥93mn.
Breakdown of consolidated net sales and profit and loss by region and by sale form

Net sales
Japan
China
Other overseas
Cloud
On-premises
Appliances
Other
Gross profit
SG&A expenses
Operating income
Ordinary income
Net income

FY12/14Share
YOY Change
4,681
100.0
3,993
85.3
590
12.6
97
2.1
2,822
60.3
771
16.5
852
18.2
234
5.0
2,701
57.7
2,297
49.1
403
8.6
594
12.7
261
5.6

FY12/15Share
YOY Change
6,083
100.0
4,783
78.6
836
13.7
463
7.6
3,947
64.9
504
8.3
1,218
20.0
413
6.8
3,354
55.1
3,006
49.4
348
5.7
179
3.0
93
1.5

Amount

Share
1,402
790
246
366
1,125
-267
366
179
653
708
-55
-415
-168

(¥mn)
%

30.0
19.8
41.6
374.8
39.8
-34.6
42.9
76.1
24.2
30.8
-13.7
-69.8
-64.2

By sale format, sales of mainstay cloud services increased 39.8% YOY to ¥3,947mn in FY12/15,
reflecting effect of investment in sales activities since FY12/14 and the initial consolidation of Wizlearn.
The number of subscription ports (subscription unit) and average usage time, both key indicators forcloud-based services, have increased steadily. The customer base, which will contribute to sales
increases in the future, is gradually expanding.
Sales of on-premises services weakened YOY, mainly because of a delay in closing contracts withJapanese financial institutions and with overseas customers, but they are expected to recover whenthese contracts are finalized. Sales of appliances, mainly sales of electronic smart board systems by
PVC, rose 42.9% YOY to ¥1,218mn.

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6

■■Business Trends

KPI – Number of contracted ports and average monthly usage time in Japan by quarter,
FY12/13–FY12/15; average port charge by quarter, FY12/15

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Source: Materials published by V-cube

By region, net sales in Japan climbed 19.8% YOY to ¥4,783mn, China sales rose 41.6% to ¥836mn,
and other overseas sales surged 374.8% to ¥463mn. The sales growth in Japan reflected theincrease in sales of cloud services and the contribution of PVC. Overseas, supplementing the strong
rise in sales in China, sales in Thailand recovered from the impact of political turmoil in that country,
and sales in Singapore and Indonesia expanded strongly, as these nations maintained growth paths.
Sales in Singapore were complemented by the contribution of a new acquisition. As a result, thecompany’s overseas sales ratio climbed from 14.7% in FY12/14 to 21.4% in FY12/15.
The gross profit margin declined to 55.1% in FY12/15 from 57.5% in FY12/14 because of the large
increase in sales of appliances, which are less profitable than the group’s services. However,overall sales growth lifted gross profit by 24.2% YOY to ¥3,354mn in FY12/15. On the other hand,
SG&A expenses increased significantly by 30.8% YOY to ¥3,006mn in FY12/15, reflecting strong
investment in sales activities. Consequently, operating income declined by 13.7% to ¥348mn in
FY12/15. Of the ¥708mn YOY increase in SG&A expenses, ¥430mn was a rise in personnel costs
accompanying group expansion, ¥164mn was an increase in rents, and ¥71mn was a goodwill
amortization resulting from the acquisition of subsidiaries.
The company suffered foreign exchange losses of ¥170mn under non-operating income/loss in
FY12/15, reversing a foreign exchange gains of ¥171mn in FY12/14. This led to a 69.8% YOY dropin ordinary income to ¥179mn and a 64.2% fall in net income to ¥93mn in FY12/15.
●Financial condition
The company’s financial condition at the end of FY12/15 was as shown in the table. Current assets
stood at ¥4,453mn, up from ¥2,987mn a year earlier. This increase in current assets stemmed mainly
from a ¥962mn rise in cash and deposits a ¥235mn upturn in notes and accounts receivable-trade.
Non-current assets expanded from ¥3,270mn at the end of FY12/14 to ¥5,702mn at the end of
FY12/15, primarily because of a ¥551mn rise in software, including software under development, due
to aggressive investment in software, and a ¥1,616mn increase in goodwill. As a result, total assets
surged from ¥3,898mn at the end of FY12/14 to ¥10,156mn at the end of FY12/15.
Current liabilities increased from ¥1,350mn at the end of FY12/14 to ¥4,345mn at the end of FY12/15,
mainly because short-term loans payable, including the current portion of long-term loans payable,
expanded by ¥2,662mn and advances received grew by ¥212mn. Net assets increased from
¥4,400mn at the end of FY12/14 to ¥4,601mn at the end of FY12/15, reflecting primarily a ¥61mn
rise in capital stock, a ¥61mn increase in capital surplus, and a ¥93mn rise in retained earnings.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Business Trends

Consolidated Balance Sheet

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

End of 12/14
Current assets
2,987
Cash and deposits and securities
1,286
Non-current assets
3,270
Software
1,806
Goodwill
833
Total assets
6,257
Current liabilities
1,350
Short-term loans payable *317
Non-current liabilities
506
Net assets
4,400* includes the current portion of long-term loans payable(¥mn)
Change+1,466+729+2,432+551+1,616+3,898+2,994+2,662+702+201

End of 12/15
4,453
2,015
5,702
2,358
2,449
10,156
4,345
2,979
1,209
4,601

Growth drivers by sales format are cloud and appliances(2) Company forecasts for FY12/16
For FY12/16, the company projects a 39.7% YOY rise in consolidated sales to ¥8,500mn, a 141.2%
increase in operating income to ¥839mn, a 329.5% jump in ordinary income to ¥771mn, and a594.2% surge in net profit attributable to owners of parent to ¥650mn. The sales growth is expected
to result from the company’s previous investments in business development, including to strengthen
the sales function and to buy promising subsidiaries. On the other hand, operating costs shouldgrow more slowly than in FY12/15. These factors should lift operating income notably. The company
forecasts no impact of foreign exchange fluctuations on its non-operating account in FY12/16. Thus,
it foresees large increases in ordinary and net incomes.
Business performance forecasts for FY12/16 (Consolidated)

Net sales
Japan
China
Other overseas
Cloud
On-premises
Appliances
Other
Operating income
Ordinary income
Net income** attributable to owners of parent

FY12/15Share
YOY Change
6,083
100.0
4,783
78.6
836
13.7
463
7.6
3,947
64.9
504
8.3
1,218
20.0
413
6.8
348
5.7
179
3.0
93
1.5

FY12/16 E
Share
YOY Change
8,500
100.0
6,284
73.9
1,127
13.3
1,087
12.8
5,690
66.9
710
8.4
1,776
20.9
323
3.8
839
9.9
771
9.1
650
7.6

Amount
Share
2,417
1,501
291
624
1,743
206
558
-90
491
592
557

(¥mn)
%
39.7
31.4
34.8
134.6
44.1
40.9
45.8
-21.7
141.2
329.5
594.2

By region, the company forecasts a 31.4% YoY rise in consolidated sales in Japan to ¥6,284mn, a
34.8% upturn in China to ¥1,127mn, and a 134.6% increase in other overseas, to ¥1,087mn. The
company’s investments in sales activities over the past fiscal years should underpin sales growth
in Japan. The SGM project and other large projects in China, as well as progress in the education
business, are likely to support sales growth in China. Sales in Thailand are seen expanding in
FY12/16, primarily sales of on-premises services. Furthermore, the full-year contribution of Wizlearn
to consolidated results should boost sales from areas other than Japan and China. The company
sees the overseas sales ratio reaching 26.0% in FY12/16. It forecasts a 44.1% rise in sales of cloudservices to ¥5,690mn, a 40.9% increase in sales of on-premises services to ¥710mn, a 45.8% upturnin sales of appliances to ¥1,776mn, and a 21.7% decline in sales of other products to ¥323mn.
Clearly the company’s sales growth drivers in terms of sale format are cloud services, but in FY12/16,
it also foresees strong sales growth for on-premises services and appliances. While it projects sales
growth in all geographical markets in FY12/16, growth in Malaysia and Indonesia has been somewhat
slower than planned, and it may be difficult to accelerate sales growth in these countries soon.

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■■Business Trends

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

The company foresees a YOY rise in its cost of sales in FY12/16, primarily because of a ¥471mn
increase in its purchased goods, of which, ¥431mn would be for appliances, a ¥190mn rise in its
software amortization, and a ¥382mn upturn in outsourcing expenses. As the company continues tohire more people for sales and product development, it sees personnel expenses rising by ¥571mn
YOY in FY12/16. It also forecasts a ¥26mn rise in its sales strategy expenses, a ¥198mn increase in
its rents, and a ¥88mn upturn in its amortization of goodwill. It does not plan to invest as much as it
has in the previous fiscal years, and it expects to see the effects of its previous investment from thesecond half of FY12/16, when it forecasts especially large profit increases.
In January 2016, the company opened a new product development center in Sendai, Japan. Thiscenter should attract and train outstanding engineers living near Sendai who want to remain in thearea while developing services for global clients in an ideal working environment. The company has
sales offices in Tokyo, Osaka, Nagoya, and Fukuoka and product development centers in Tokyo andSingapore. The Sendai product development center is its third such center.

伪伪Medium-to-long-term Strategy (2016 Midterm Strategy)
Scope to develop potential markets, strengthening industryspecific services and drone use
V-cube recently announced a plan of operations for FY12/16–FY12/18. The company’s main visionor objective remains to become the No. 1 visual communication platform in Asia.
(1) Positions, target, policies
The new Midterm Strategy is the third of four stages of new growth envisioned in the company’s longterm strategy. The plan is positioned to jump to accelerated growth: yield & growth.

Source: Materials published by V-cube

The business plan for FY12/16-FY12/18 targets ¥13.9bn in consolidated net sales and ¥3.0bn inconsolidated operating income for FY12/18. The company has not announced targets for FY12/20,
but its presentation materials suggest targets of ¥24.0bn for net sales and ¥9.0bn for operating
income.

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Medium-to-long-term Strategy (2016 Midterm Strategy)㼀㼍㼞㼓㼑㼠㼑㼐㻌㼍㼏㼔㼕㼑㼢㼑㼙㼑㼚㼠㻔¥㼙㼚㻕

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻝㻜㻘㻜㻜㻜

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FISCO Ltd. Analyst
Noboru Terashima

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Important disclosuresand disclaimers appear
at the end of this document.

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11-May-16㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

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The company has cited three main focus objectives: deepening influence in change of work-style,to contribute to social infrastructure, and further overseas business expansion with focus on Asia in
its Midterm Strategy.

Source: Materials published by V-cube(2) Policies to further change of work-styles●Increase of market share in web conference & video conference
In 2004, V-cube began offering web conferencing as a platform to change work styles. The company
aims to increase its share of the Japanese market for web conferencing, which is currently about¥12.0bn per year but is projected to grow to ¥100.0bn. At the end of FY12/15, the company entered
Japan’s video conferencing market by launching its V-CUBE Box service. Web conferencing andvideo conferencing are forms of visual communication that enable new work styles.
●Expand use cases
The company aims to increase the applications of its remote conferencing services, thereby further
differentiating its services from those of competitors. For example, its video conferencing service
could be used for sales meetings and for training employees in all offices in Japan. Web conferencing
could be used to support sales to and support for customers in remote areas. Either service could
be used for regular maintenance inspections, for conferences between business offices, to offer
seminars to partners, and to enable telework and field work.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Medium-to-long-term Strategy (2016 Midterm Strategy)

V-cube, Inc.
3681 Tokyo Stock Exchange First
SectionSource: Materials published by V-cube

11-May-16

Provide VC solution services combining services such as V-CUBE Meeting, V-CUBE Document,
V-CUBE Seminar, V-CUBE Sales & Support, V-CUBE Portal, and V-CUBE Gate.

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima
Source: Materials published by V-cube●Accelerate penetration and increase regular use
To hasten the penetration of V-cube services throughout the Japanese market, the company recently
reached an accord with Microsoft Japan to cooperate in cloud services. Based on this agreement,
V-cube will adopt Microsoft Japan’s basic computer system, Azure, enabling the seamless use ofboth companies’ cloud services with a single service sign-on. This agreement will also facilitate
V-cube’s sales of services overseas.
In November 2014, V-cube launched its V-CUBE Gate text charting service, which operates at avariety of settings and is free for the company’s corporate clients. Text charting is well recognized in
the business community, so it is probably easier to sell than a web conferencing service. However,
V-CUBE Gate is connected to the company’s web conferencing service. With the click of a button,a customer using V-CUBE Gate can access the web conferencing service and other group’s main
services. Hence, the name of the text charting service – it acts as a gate to the other main services
offered by V-cube.
●Maximize group synergy
By integrating V-cube’s ability to offer e training, mainly on demand, with its real-time services, thecompany aims to increase the cross-selling of its services and to further differentiate itself fromcompetitors. The V-cube group has more than 5,000 corporate customers, and by integrating the
educational supervision system and other services offered by iStudy, it plans to meet the potentialtraining needs of the group’s large customers. iStudy has about 400 corporate customers, including
large financial institutions. By integrating V-cube services, iStudy should be able to provide services
for corporate infrastructure, as well as offering training services.

Source: Materials published by V-cube

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Medium-to-long-term Strategy (2016 Midterm Strategy)(3) Contribute to social infrastructure
The company intends to promote the use of its web conferencing and video conferencing services inmany areas of daily life, including education, medicine, finance and robotics. In other words, it aims
to contribute to social infrastructure.

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima●Policy change, business model
Deregulation in some industries, stricter regulation in others, and government policies are likely tosupport the increased use of visual communication services. For example, the government is promoting
the regional revitalization of Japan and the formation of a social structure in which a populationof 100 million people can remain active. The realization of these goals a further diversification ofwork styles, such as telework. Many changes are occurring in Japan’s education. The government
has recently abolished a previous prohibition on distance learning for high school students. The
government has begun to construct schools for private operators. School administration requires
more information. Information communication technology is being used more for education in Japan.
Exams to enter Japanese universities have been revised. All of these changes offer opportunities
for the use of visual communication services. Similar changes are taking place in the practice of
medicine in Japan. Tele-medicine now allowed. Some pharmaceuticals can be prescribed online.
Japanese self-governed pharmaceutical companies, and mental health services are now required.
The financial industry has been deregulated, the terms of real estate contracts can now be explained
online, and insurance laws have been revised. The robotics field in Japan has been affected byrecent restrictions on the use of drones and by amendments of Aviation Law or Radio Law. Thesechanges, too, offer growth opportunities for V-cubes services.
The company also plans to change its business model from the current one, in which it simply
charges fees for its services. It could form partnerships with companies operating in the areas ofsociety it aims to penetrate, provide services to consumers, and split the resulting profits with its
partners. Through this partnership model serving consumers, it could obtain part of the fees charged
to consumers for tuition, training, medical care, nursing care at home, contracts, and intermediation.
●Education
In addition to V-cube, iStudy, Wizlearn, and PVC cover solutions in ICT of education, distance learning,
online training, e learning, and other services. By 2020, Japan’s market for active learning, centeringon the use of electronic smart boards, is projected to reach ¥12.0bn. The market for distance learningfor schools and for e learning is forecast at ¥53.3bn. The market for systems digitalization to support
school administration is seen at ¥18.5bn, and the educational services market, comprised of private
tutorial schools, correspondence education, etc., is forecast at ¥173.0bn.
To develop its business in Indian market for education, iStudy has formed a business relationshipwith Fliplearn Education Private Limited (Fliplearn), headquartered in New Delhi.
●Medicine
M-cube, Inc., a joint venture between V-cube and M3, Inc. handles the group’s healthcare services.
V-cube foresees increasing demand for visual communication services in healthcare, e.g., for thetele-medicine, tele-healthcare, and remote prescription as well as marketing in pharmaceuticals
companies.
●Finance
The company also anticipates opportunities to provide visual communication services for finance.
These services could be used by Japan’s megabanks, regional banks, shinkin banks, trust banks
and other financial institutions for many purposes: making personal transactions remotely, advising
about fund investment or asset inheritance, supporting the work of bank employees in the field, and,through remote seminars, introducing products and promoting remote sales. They could also be
used to conclude consumer finance contracts remotely and for internal audits for agencies selling
different kinds of insurance. These services could be used in the real estate industry to contact
clients and to explain the details about a property.

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

■■Medium-to-long-term Strategy (2016 Midterm Strategy)●Robotics
V-cube believes that its services could be used in robotics, mainly for the use of drones. Commercial
drones could be used by local governments for disaster relief and police and fire department work.
They could also be used to inspect infrastructure, such as bridges and dams, and to maintain plants
and other large facilities. The company estimates the size of Japan’s market for commercial drones
will reach ¥100.0bn.

V-cube, Inc.
3681 Tokyo Stock Exchange First
Section

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

In October 2015, V-cube founded V-cube Robotics, which is developing cloud-based software
solutions for drones that allow the drones to monitor sites remotely. V-cube expects this business togrow briskly from FY12/18.
●Big data
The company foresees an increase in the gathering, processing, analysis and use of large amountsof data, including text data, voice data, video data, and data on the history of human behavior. It
believes that its visual communication services could play an important role in gathering this data.
Therefore, it is getting involved in the market for big data, although it is not currently involved enoughto directly affect its profits.
(4) Asia focused overseas business
There are opportunities to facilitate changes in work-style and to contribute to social infrastructurein Asian countries other than Japan. Therefore, V-cube plans to continue to expand its business inthese countries, aiming to lift its overseas sales ratio to 26% in FY12/16 and to 40% as soon as
possible. It expects most of its growth in China and India, but it also intends to expand its businessin Singapore, Thailand, Malaysia, Indonesia, and Taiwan.
From FY12/16, V-cube intends to concentrate on expanding its business in India. As mentioned
above, subsidiary iStudy has formed a business tie-up with Fliplearn, of India, to participate in
the Indian market for educational services. V-cube has also formed a business relationship withINTELLISYS Technologies & Research Pvt. Ltd. (INTELLISYS), India’s largest provider of web
conferencing, to cooperate in visual communication services. INTELLISYS will begin selling the
V-CUBE web conferencing service in India to satisfy market needs that the company has been
unable to meet with its Vennfer web conferencing service. These business developments in India
may not affect V-cubes sales and profits much in FY12/16, but they could in future years since India
is a promising market.

Funds raised by issuing stock acquisition rights with variable
exercise price
The company raised funds by issuing stock acquisition rights on April 15, 2016. The rights allocator
was Merrill Lynch Japan. Details are below.
Rights issued: 30,000 units (100 shares/unit)
Issuing price: ¥634/unit (proceeds: ¥19,020,000)
Potential dilution: ‌3,000,000 shares, equal to 15.9% of the number of shares outstanding at
the end of 2015. Exercise price upper limit: none; lower limit: ¥1,196/share.
Funds to be procured: ¥4,494,020,000	Initial exercise price and conditions for amendment: The initial exercise price was ¥1,494
per share. This exercise price shall be adjusted to equal 91% of the closing price for thecompany’s common shares on the day before a right is exercised. However, it cannot belower than ¥1,196 per share.
Exercise period: April 18, 2016 through April 17, 2018
Allocator: Merrill Lynch Japan
Other: (conditions)		The company retained the right to decide the number of rights to be sold and thetiming of their sale until the date of sale.
		The company can control the supply of its shares to rights holders to prevent a
sudden, large drop in its share price.
		The company can designate periods during which rights may not be exercised, basedon such factors as share price trends
The company stated that this procurement of funds would increase the probability of procuring theamount targeted in its midterm strategy for FY12/16–FY12/18.

We encourage readers to review our complete legal statement on “Disclaimer” page.
13

伪伪Shareholder return policy
Considering starting dividend payments from FY12/16 basedon a dividend payout ratio of 20%

V-cube, Inc.
3681 Tokyo Stock Exchange First
SectionV-cube has never paid dividends, and it has not announced plans to pay them. However, when it
announced its 2016 midterm strategy, it stated that it was considering paying dividends from FY12/16
based on a dividend payout ratio of 20%. Based on the company’s forecast of earnings per share for
FY12/16, this payout ratio implies dividends of ¥7.0 per share for FY12/16. The company’s dividend
policy as well as future trend of its earnings should be monitored.

11-May-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

We encourage readers to review our complete legal statement on “Disclaimer” page.
14

Disclaimer
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