Digital Arts Inc. (2326)

FY03/17 Consolidated Financial Resultsfor Third Quarter Ended December 31, 2016
（April 1, 2016 through December 31, 2016)

Reference Slides
January 30, 2017

Copyright © 2015 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

KEY FINANCIAL POINTS

2

Copyright © 2017 Digital Arts Inc.

Key Financial Points① Steady increase in opportunity acquisitions due to dramatic increasein demands related to “cloud solutions for local government data
security” and “local government data security enhancement
measures”• Mainstay i-FILTER (or D-SPA) and m-FILTER sales soared in the public sector:
Government agencies at the prefectural and local levels performed measures toenhance cyber security in accordance to a guideline issued by the Ministry ofInternal Affairs and Communications to fundamentally enhance information
security in local municipalities.

② FinalCode continues rapid growth• Increase in sales of FinalCode Ver. 5, providing advanced files security forcompanies and organizations that handle large volumes of customer data.
• Steady increase in deployment of FinalCode Limited Edition for Local Government,
an edition that responds to needs specific to prefectural, city and local
municipality governments.

③ Steady increase in acquisition of consulting opportunities• Increased awareness on data security measures resulted in steady increase odorders received by Digital Arts Consulting, contributing to the Group’s salesgrowth.

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Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

CONSOLIDATED RESULTSHIGHLIGHTS

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Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Highlights (Consolidated)
Consolidated
Net Sales

Operating
IncomeOrdinary
IncomeNet Income

Attributable toOwners of Parent¥ 3,518 million（YoY+¥770 million／+28.1％）

Significant growth in mainstay i-FILTER and m-FILTER by capturing the needs of clientsadhering to guidelines issued by Ministry of Internal Affairs and Communications¥ 1,145 million（YoY+¥540 million／+89.3％）

Surge in sales absorbed costs, such as increase in domestic personnel expenses,
for a considerable increase in operating income¥ 1,134 million（YoY+¥524 million／+85.8％）

Secured substantial growth compared to 2Q due to the turn to the weakening
yen and a decrease in foreign exchange loss¥693 million（YoY+¥333 million／+92.7％）

Achieved extensive increase in revenues due to an increase in operating income
resulting from growing sales in the domestic market
5Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Summary
Consolidated Results(million yen)

FY03/16
Third Quarter

FY03/17
Third Quarter

YoY Growth

FY03/17
Forecast

Net Sales

2,747

3,518

+28.1%

4,600

Gross Profit

2,086

2,776

+33.1%

3,652

Selling, General and
Administration
Expense

1,481

1,631

+10.1%

2,252

Operating Income604

1,145+89.3%

1,400

OrdinaryIncome

610

1,134+85.8%

1,400

360

693+92.7%

870

8.4%

14.8%

Net Income

Attributable to Owners ofParentROE

6――Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Summary
Non-Consolidated Results(million yen)

FY03/16
Third Quarter

FY03/17
Third Quarter

YoY Growth

FY03/17
Forecast

Net Sales

2,744

3,575+30.3%

4,598

Gross Profit

2,129

2,765+29.8%

3,555

Selling, General andAdministration
Expense

1,290

1,451

+12.5%

1,843

Operating Income

839

1,313+56.5%

1,712

Ordinary
Income844

1,302+54.1%

1,712Net Income559880+57.3%

1,182

ROE

12.4%

17.0%

7―

―Copyright © 2017 Digital Arts Inc.

Consolidated Net Sales Trend
Continue to mark RECORD HIGH sales!!

（million yen）

3,518
（128%）

2,747

1,888

1,325

1,490
（112%）

1,617（117%）

1,975

2,124

2,325（118%）（109%）（108%）（105%）（109%）

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

※ Percentages indicate YoY net sales

8Copyright © 2017 Digital Arts Inc.

Consolidated Net Sales Trend (by Quarter)（million yen）

Kept up the favorable pace in Q2, increasing
35.2% YoY

1,503（133%）

1,253
1,077831（106%）

650643（114%）（103%）

Q1

Q2

Q3715673

FY ended March 2014

Q1803

811（119%）（113%）（114%）（111%）（103%）

Q4（135%）916（113%）（97%）

1,098（121%）（119%）

937902（116%）

1,131

Q2

Q3

Q4

Q1

FY ended March 2015

Q2

Q3

Q4

FY ended March 2016

※ Percentages indicate YoY net sales

9Q1

Q2

Q3

Q4

FY ending March 2017
Current FY
Copyright © 2017 Digital Arts Inc.

COS and SG&A COS and SG&A increased slightly due to increased personnel expenses in Japan
However, COS and SG&A trends remain largely according to period start forecast（million yen）

FY03/16
Third Quarter

FY03/17
Third Quarter

YoY Growth

Cost of Sales

661

741+80Labor

264

321+57

Depreciation

210

214+4

Transfer to other accounts
Misc production cost

186

205+18Selling, General andAdministrative Expenses

1,481

1,631

+150

Personnel Expenses

788

856+68Publicity

190

236+46Others502

538+3510

Key Factors

Incl. domestic personnelexpenses (+92 M)
Incl. sales promotion
expenses (+34 M)
Incl. increased tax
expenses due to tax
reform (+24M)
Copyright © 2017 Digital Arts Inc.

Cost of Sales (by Quarter)（million yen）

No significant changes in the breakdown of cost of sales
Personnel Expenses

226
201

（128%）

Depreciation219（120%）

229

Other Accounts & Misc.

228（118%） （113%）

238（105%）

283

264（123%）（93%）

224（102%）72

227

211（96%）

222

64
44

54

56

52

59

77
65

48
54

67

79

85

60

67

70

96

94

93

94

93

93

96

101

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

FY ended March 2014

78

80

FY ended March 2015

7072

67

86

87

9011（110%）

71

68

Q1Q2

Q372

72

69

109

103

112

106

Q4

Q1Q2

Q3

FY ended March 2016

※ Percentages indicate YoY cost of sales

244

64

109
82（113%）

（99%）

（93%）

（113%）

240（114%）256

Q4FY ending March 2017
Current FY
Copyright © 2017 Digital Arts Inc.

Selling, General and Administrative Expenses(by Quarter)

SG&A increased due to increase in domestic personnel
Labor

Publicity

Others586

Overseas（125%）

431

408

365（109%）343（96%）149356123363（100%）

133

161

130

214

Q131

194

188

Q2Q34887339613727182

189

197

205

Q4Q1Q2Q3

FY ended March 2014

556（114%）482（123%） （133%）92716872
180

176

151

154
172

149

3234212219

Q4Q1

FY ended March 2015

148
56

1283

59241

257

243

Q1

Q2

Q351

39208

221

Q2

Q3273

Q4

FY ended March 2016

※ Percentages indicate YoY cost of sales

498（103%）

49164

80

67
40（111%）（106%）

158
130

58394

396

（95%） （108%）（million yen）

（148%） （113%）

510（111%）576

Q4

FY ending March 2017
Current FY
Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

BY MARKET

13Copyright © 2017 Digital Arts Inc.

Summary: Net Sales by Market
 +28.1% YoY growth in consolidated sales
 Enterprise: continue steady growth at +17.3% YoY
 Public: dramatic increase of +50.1% YoY with cloud solutions to enhancedata security in local municipalities Consumer: held firm despite steep decline in domestic consumer PC shipments
Consolidated
Net SalesNet sales: ¥ 3,518 million（¥

Enterprise

Net sales: ¥ 1,740 million（ ¥ +256 million ／+17.3％ YoY ）（ ¥ +508 million ／+50.1％ YoY ）PublicNet sales:¥ 1,523 million

Consumer

Net sales:¥254 million （ ¥14+770 million ／ +28.1％ YoY ）+5 million ／ + 2.3％ YoY ）Copyright © 2017 Digital Arts Inc.

Sales Trend by Market
Public sector grew significantly from Q2 mainly by offering solutions
that satisfy the level of security demanded in the Ministry of internal
Affairs and Communications’ guidelines on strengthening local
government security
Enterprise

Public（million yen）

3,518（128%）

254Consumer

2,747（118%）

1,888
1,490
1,325
190
494（112%）215
562

1,617（109%）（117%）

206194585

758

1,975（105%）

2237692,124（108%）

2,325

1,523

265

266750248（109%）

1,014
826923

982

1,108

1,233

1,483

1,740

640711837

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

※ Percentage indicates YoY net sales

15Copyright © 2017 Digital Arts Inc.

Quarterly Net Sales by Market
Significant growth in Public Sector drove overall performance（million yen）

1,503
Enterprise

PublicConsumer（133%）

84

1,253
1,131

1,077

831
650

643（114%）（103%）

10179319

Q1278

426

Q2673
85

Q4

FY ended March 2014

715402313（119%）

89

Q1498

409

Q2

Q3403

（114%）

799

89（113%）

80427

78
296
259

256

216

444

916
811

89

756

665
380

349

803
（111%）（103%）

529

Q390

207

214

216

331

94

（135%）

80

97（113%）（97%）（106%）

85937

902

93

（121%）（119%）

1,098（116%）

457

Q4

Q1

FY ended March 2015

552

Q2

530

473

Q3

Q4

FY ended March 2016

Q1619

590

Q2

Q3

Q4

FY ending March 2017
Current FY※ Percentage indicates YoY net sales

16Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

ENTERPRISE SECTOR17Copyright © 2017 Digital Arts Inc.

Enterprise Sector
 Robust sales in mainstay i-FILTER series and FinalCode Successful turnaround for m-FILTER series due to steady accumulation of sales
opportunities
 Amid a series of incidents with large-scale leak of customer information, sales forFinalCode 5 steadily increased with its company-wide advanced file security solution,
meeting the needs of corporations that handle large volume of customer dataSeries+ 14.9 ％Series+ 1.3 ％+ 113.8 ％18Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

PUBLIC SECTOR

19Copyright © 2017 Digital Arts Inc.

Public Sector
 i-FILTER series and m-FILTER series, the two main offerings for the public sector, soared
as government in prefectural and local levels are improving cyber security under theMinistry of Internal Affairs and Communications’ guidelines on fundamental
strengthening of local government security
 Robust implementation of FinalCode Limited Edition for Local Government, providing
simple functions that public organizations wantSeries+ 38.0 ％Series+ 139.5 ％+ 441.2 ％20Copyright © 2017 Digital Arts Inc.

FY03/17 Third Quarter Financial Results

CONSUMER SECTOR

21Copyright © 2017 Digital Arts Inc.

Consumer Sector
 Continued to enter tie-ups with mobile operators and MVNO operators to expand sales
and increase collaboration for the mobile device version of i-FILTER (Consumer) forSmartphones
 Firm sales for the PC version of i-FILTER (Consumer) due to OEM-driven sales androbust shipments of multi-year packaged products, despite a decline in the number ofdomestic consumer PC shipments
 Sales expanded for i-FILTER (Consumer) for Multi-Device, which can be used onmultiple OS with a single serial ID
PC+4.5 ％Game Console/TV－ 11.7 ％Mobile Device+8.9 ％

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FY03/17 Third Quarter Financial Results

FY03/17 FORECAST

23

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FY03/17 Earnings Forecast
平成29年３月期
業績予想について
FY03/17 ConsolidatedForecast

Digital Arts maintains its full-year forecast, however given the favorable environment thatis projected to continue, the consolidated forecast for FY03/17 (April 1, 2016 throughMarch 31, 2017) is currently under review and will make timely disclosures as necessary.

24Copyright © 2017 Digital Arts Inc.

FY03/17 Earnings Forecast
FY03/17 Consolidated Forecast
 FY03/16 favorable domestic market conditions are projected to continue
 Conservative guidance for overseas operations although has started to produce
concrete sales results
 Expects revenue growth to accelerate as overseas investment will be limited to a slightincrease（million yen）
FY03/16
ActualFY03/17
Forecast

GrowthRateNet sales

4,000

4,600

15.0 %

Gross Profit

3,074

3,652

18.8 %

Selling, General andAdministration Expense

2,067

2,252

9.0 %

Operating Income

1,006

1,400

39.1 %

Ordinary Income

994

1,400

40.8 %Net Income

54587059.5 %

15 yen20 yenAttributable to Owners of Parent

Dividends per Share

25―Copyright © 2017 Digital Arts Inc.

FY03/17 Earnings Forecast
FY03/17 Non-Consolidated Earnings Forecast
 Favorable domestic market environment in FY03/16 is projected to continue（million yen）

FY03/16
ActualFY03/17
Forecast

GrowthRate

Net Sales

4,018

4,598

14.4 %

Gross Profit

3,123

3,555

13.8 %

Selling, General and
Administration Expense

1,788

1,843

3.0 %

Operating Income

1,335

1,712

28.3 %

Ordinary Income

1,328

1,712

28.9 %

840

1,182

40.7 %Net Income

26

Copyright © 2017 Digital Arts Inc.

FY03/17 Return to Shareholder■ Dividend Distribution
Digital Arts plans to return profit to its shareholders as follows:
Projected dividend payout ratio for FY03/17:
32.0% of consolidated net income of the current period
The amount of annual dividends for the period ending March 2017:
Estimated at 20.00 yen per share.
Dividends per share (in yen)Interim

FY03/16

7.00

FY03/1710.00

Fiscal year-end

FY03/17 (forecast)

27

AnnualConsolidated
Payout Ratio

8.00

15.00

38.2％

10.00

20.00

32.0％

Copyright © 2017 Digital Arts Inc.

Forward Looking Statements

All statements herein, other than historical facts, contain forward-looking statements and are based on
DA’s current plans, strategies and financial forecasts. These forward-looking statements are based upon
management’s current assumptions and beliefs in light of the information currently available to it,
however environmental changes and other important factors could cause actual results to differ
materially from those expressed in our forward-looking statements. All statements herein are notintended to express DA’s commitment to fulfill any forward-looking statements. Updated information, ifapplicable, will be disclosed in a timely manner.
All numerical indications in this statement, unless noted, are rounded to the nearest million yen.

・ DIGITAL ARTS, ZBRAIN, /i-FILTER/i-FILTER EndPoint Controller, m-FILTER/m-FILTER MailFilter/m-FILTER Archive/m-FILTER AntiSpam/m-FILTER File Scan, and D-SPA are registered trademarks of Digital Arts Inc.
・ FinalCode is a registered trademark of Digital Arts Group.
・ Other corporate and product names are trademarks or registered trademarks of those companies.

28Copyright © 2017 Digital Arts Inc.

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Copyright © 2015 Digital Arts Inc.