Digital Arts Inc. (2326)

FY03/17 Consolidated Financial Results
For First Quarter Ended June 30, 2016
（April 1, 2016 through June 30, 2016)

Supplemental Material
July 28, 2016
Copyright © 2015 Digital Arts Inc.

FY03/17 First Quarter Financial Results

KEY FINANCIAL POINTS

2

Copyright © 2016 Digital Arts Inc.

Key Financial Points① Robust sales for mainstay i-FILTER and m-FILTER• Serious security incidents, large-scale leak of personal information via targeted attacks• Increased awareness of the importance of improving information security② FinalCode continues rapid growth• FinalCode Ver. 5 provides company-wide advanced file security, meeting the needs ofcorporations that handles large volumes of customer data
• Robust implementation of FinalCode limited edition for local government,with simple functions that public organizations want(order volume expanded by a sharp 47 times from the previous year)③ Guidelines on Fundamental Strengthening of Local Government Data Security(Ministry of Internal Affairs and Communication)• Local governments allocated money for enhancing cyber security-City, wards, towns and villages actively improving security• Contracts soared as a result of proposing solutions that meet these guidelines

3Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

CONSOLIDATED RESULTSHIGHLIGHTS

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FY03/17 First Quarter Highlights
Consolidated
Net Sales

Operating
IncomeOrdinary
IncomeNet Income

Attributable toOwners of Parent¥

916 million（YoY+¥113 million/ +14.1％）

Achieved significant growth YoY due to solid sales of mainstay i-FILTER, acquisition oflarge D-SPA contracts, and robust domestic FinalCode sales¥

99 million（YoY+¥17 million/ +21.7％）

Boast of sales increased operating income, despite increasing expenses from hiring
more employees in Japan and increase in overseas locations¥78 million（YoY－¥ 6 million/ － 8.1％）

Forex losses (¥20million) from the rapid appreciation of the yen¥

13 million（YoY－¥43 million/ －76.4％）

While domestic sales were robust, net income registered negative growth YoY due toinvestment in overseas subsidiaries and increased tax burdens (forecast factored in)
5Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter SummaryConsolidated Results(million yen)

FY03/16First Quarter

FY03/17First Quarter

YoY Growth

FY03/17
Forecast

Net Sales

803916+14.1%

4,600

Gross Profit

592

676

+14.2%

3,652

Selling, General and
Administration
Expense510

576+13.0%

2,252

Operating Income

81

99+21.7%

1,400

Ordinary
Income8578－8.1%

1,400

Net Income

57

13－76.4%

870

1.4%

0.3%

Attributable to Owners ofParent

ROE

6――

Copyright © 2016 Digital Arts Inc.

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

FY03/16First Quarter

FY03/17First Quarter

YoY Growth

FY03/17
Forecast

Net Sales

802945+17.8%

4,598

Gross Profit

617688+11.4%

3,555

Selling, General andAdministration
Expense450509+13.1%

1,843

Operating Income

167

178

+6.9%

1,712

Ordinary
Income

172

161

－6.2%

1,712

Net Income

117

102

－13.2%

1,182

ROE

2.7%

2.0%

―7―

Copyright © 2016 Digital Arts Inc.

Consolidated Net Sales Trend
Consolidated sales were a RECORD HIGH!

（million yen）

916
（114%）

803（119%）

682

650（131%）（114%）

570

368（103%）

（84%）

521
448

673（116%）（122%）

FY03/09

FY03/10

FY03/11FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

1Q

1Q

1Q

1Q

1Q

1Q

1Q

1Q

1Q

※ Percentages indicate YoY net sales

8Copyright © 2016 Digital Arts Inc.

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

First quarter net sales exceeded forecast

1,253（116%）

1,131

1,077

（121%）（119%）

937902

（97%）

831

2Q

3Q

（111%）（103%）（103%）（114%）

1Q

673

643

4Q

FY ended March 2014

1Q

（113%）（119%）

715（114%）

811

803（106%）650

916（113%）

2Q

3Q

4Q

1Q

FY ended March 2015

2Q

3Q

4Q

FY ended March 2016

※ Percentages indicate YoY net sales

91Q

2Q

3Q

4Q

FY ending March 2017
Current FYCopyright © 2016 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 budget（million yen）

FY03/16First Quarter

FY03/17First Quarter

YoY Growth

Cost of Sales

211240+29Labor86

103+16

Depreciation

7072+1

Transfer to other accounts
Misc production cost5465+11Selling, General andAdministrative Expenses

510576+66Labor

250

286+36

Publicity

94

101+7

Others

165

188
10+23

Key Factors

Incl. overseas personnel
expenses (+14M)

Server replacement
Hiring employees inJapan, etc.

Copyright © 2016 Digital Arts Inc.

Cost of Sales (by Quarter)
No significant changes in the breakdown of cost of sales
Labor

Depreciation

226
201

（128%）

219（120%）

283

Other Accounts & Misc

229

228

（118%） （113%）

238（105%）（million yen）

264

（123%）（93%）

224（102%）

72

227

211

（96%）

222

（99%）

77

（93%）

（113%）

64
4454

56

52

59

65

48
54

67

64

109
79

82

85

78

80

60

67

70

96

949394939396101

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

FY ended March 2014

240（114%）

FY ended March 2015

7072678687

90

1Q

2Q

3Q

109103

4Q

1Q

FY ended March 2016

※ Percentages indicate YoY cost of sales

1172

2Q

3Q

4Q

FY ending March 2017
Current FY
Copyright © 2016 Digital Arts Inc.

Selling, General and Administrative Expenses(by Quarter)

SG&A increased due to strategic upfront investment on overseas operations
Labor

Publicity

OthersOverseas（125%）

431

408

365（109%）343（96%）149356123363（100%）

133

161

130

214

1Q

31

194

1882Q

3Q

488

396137279271

164

180（million yen）

7372

151
172

149

3234182

189

197

205

212

219

4Q

1Q

2Q

3Q

4Q

1Q

FY ended March 2014

482（123%） （133%）80

6740（111%）（106%）

158
130

58

394

396

（95%） （108%）576（148%） （113%）

510（111%）586

FY ended March 2015

1485639

208

221

2Q

3Q

273

4Q

FY ended March 2016

※ Percentages indicate YoY cost of sales

1283

241

1Q

2Q

3Q

4Q

FY ending March 2017
Current FY
Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

BY MARKET

13Copyright © 2016 Digital Arts Inc.

Summary: Net Sales by Market
 +14.1% growth in consolidated sales

 Double-digit growth in enterprise +15.9% and public +15.8% sectors
 Consumer market held firm despite steep decline in domestic consumer PC shipments

Consolidated
Net Sales

Net sales:¥ 916 million+¥113 million / +14.1％ YoYEnterpriseNet sales:¥ 530 million+¥72 million / +15.9％ YoY

PublicNet sales:¥ 296 million+¥40 million / +15.8％ YoYConsumerNet sales:¥ 89 million+¥0 million / +0.2％ YoY

14Copyright © 2016 Digital Arts Inc.

Sales Trend by Market
Maintained high growth rate due to increased awareness of the importance ofenhancing security measures against targeted attacks and leak of sensitive datain the enterprise and public sectors
803
Enterprise

Public（119%）

Consumer

682

650（131%）

521
368

448

（116%）（121%）

70

72
70

69

570
（83%）

（114%）

101673（103%）

85（million yen）

916
（114%）

89

89
296
256

73
332

170

216

207

190
144

126
326

331

380

456

530

230

260

281

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

１Q

１Q１Q

１Q

１Q

１Q

１Q

１Q

１Q

171

※ Percentage indicates YoY net sales

15Copyright © 2016 Digital Arts Inc.

Quarterly Net Sales by Market
Robust growth in enterprise and public sectors in each quarter year-on year

（million yen）

1,253
Enterprise

PublicConsumer

1,077

831

（114%）

101

94
85

643

（103%）

319

90

673

715
（111%）

278

79

85

402

803（119%）

313
89

331

1Q

2Q

380

349

3Q

4Q

FY ended March 2014

1Q

（113%）

498（114%）

403
89

78
296

89
259

216
756

665
426

811

256

207

529

916

80（103%）

214

216

97（97%）（106%）

650（113%）90293（121%）（119%）

937（116%）

1,131444

409

2Q

3Q

457

4Q

1Q

FY ended March 2015

552

2Q

530473

3Q

4Q

FY ended March 2016

※ Percentage indicates YoY net sales

16

1Q

2Q

3Q

4Q

FY ending March 2017
Current FY
Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

ENTERPRISE SECTOR

17

Copyright © 2016 Digital Arts Inc.

Enterprise Sector
 Robust sales in mainstay i-FILTER and FinalCode m-FILTER sales fell YoY (special procurement in the same quarter of the preceding year),
however positive outlook for further growth by acquiring abundant prospectivecontracts
 In an environment where leaks of large volumes of customer information occur often,FinalCode Ver. 5 provided company-wide advanced file security, meeting the needs ofcorporations handling large volume of customer data, firmly increasing FinalCode sales+ 16.3 ％－5.6 ％+ 29.5 ％+ 346.9 ％18Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

PUBLIC SECTOR

19

Copyright © 2016 Digital Arts Inc.

Public Sector
 Firm sales for core products i-FILTER, m-FILTER, and FinalCode Acquired key i-FILTER contracts with large organizations looking to strengthen security
 Robust implementation of limited edition local government version of FinalCode,providing simplicity and functions that public organizations want Contracts soared under the Ministry of Internal Affairs and Communications’ guidelines
on fundamental strengthening of local government data security-- will further increase
market share by steady acquiring prospective contracts in 2Q onwards+2.6 ％+ 30.9 ％+232.8 ％※47 folds※ Based on orders received (all amount accounted as deferred income in the same quarter of the preceding year)
20

Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

CONSUMER SECTOR

21

Copyright © 2016 Digital Arts Inc.

Consumer Sector
 Firm sales for the PC version due to OEM-driven sales and robust shipments of multiyear packaged products, despite a decline in domestic consumer PC shipments
 Sales expanded thanks to strong sales of i-FILTER Multi-Device, which can be used on
multiple operating systems with a single serial IDPC－5.7 ％Game Console/ TV－ 3.3 ％Mobile Device+17.5 ％

22Copyright © 2016 Digital Arts Inc.

FY03/17 First Quarter Financial Results

FY03/17 EARNINGS FORECAST

23Copyright © 2016 Digital Arts Inc.

FY03/17 Earnings Forecast
FY03/17 Consolidated Earnings Forecast
 FY03/16 domestic market environment is expected to continue
 Maintain conservative guidance for overseas operations although seeks to acquired
prospective contracts
 Expects increase in margins as overseas investment will be limited to a slight increase（million yen）

FY03/16
ActualFY03/17Forecast

GrowthRate

Net sales

4,000

4,600

15.0 %

Gross Profit

3,074

3,652

18.8 %

Selling, General and
Administration Expense

2,067

2,252

9.0 %

Operating Income

1,006

1,400

39.1 %

Ordinary Income

994

1,400

40.8 %Net Income

545

870

59.5 %

15 yen20 yenAttributable to Owners of Parent

Dividends per Share

24―Copyright © 2016 Digital Arts Inc.

FY03/17 Earnings Forecast
FY03/17 Non-Consolidated Earnings Forecast
 Favorable domestic market environment in FY03/16 expected 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

25Copyright © 2016 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 is set at32.0% of consolidated net income of the current period
The amount of annual dividends for the period ending March 2017 is estimated at
20.00 yen per share
Dividends per share (in yen)InterimFiscal year-end

AnnualConsolidated
Payout Ratio

FY03/16

7.00

8.00

15.00

38.2％

FY03/17 (forecast)

10.00

10.00

20.00

32.0％

26

Copyright © 2016 Digital Arts Inc.

Forward Looking Statements

All statements herein, other than historical facts, contain forward-looking statements and are basedon DA’s current plans, strategies and financial forecasts. These forward-looking statements arebased 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 not intended to express DA’s commitment to fulfill any forward-looking statements.
Updated information, if applicable, 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.

27Copyright © 2016 Digital Arts Inc.

‐Contributing to a more convenient, comfortable and safe internet‐

Copyright © 2015 Digital Arts Inc.