January 31, 2023

Sector: Information and Communication

Drecom (3793)

FY 3/2023 Third Quarter Result
October 1 – December 31, 2022

GIR Earnings View

Summary of Financial Resultforthe Nine Months Ended,
December 31, 2022

After the close of business on January 30, 2023, the company announced
Q3 FY03/2023 results and revised full-year forecasts (see below).
In the third quarter (October-December), sales declined 11% YoY to 2.58
billion yen, while operating income rose 9% YoY to 492 million yen.
Although sales growth was somewhat sluggish, operating income
increased steadily due to an improved sales mix, especially for mainstay
titles.
On the other hand, net income attributable to shareholders of the parent
company was 110 million yen, down 54% YoY. This was due to a partial
impairment loss on software assets related to one title in operation.
The IP title One Piece Treasure Cruise has been performing well since Q1of this fiscal year, but appears to have settled down in Q3. However, of the
11 game titles in operation, including this title, 10 titles are steadily posting
profits, and the loss from one unprofitable title appears to be minimal. As aresult, it can be said that the company has generally been accumulating
operating and ordinary income at a cruising speed.

The company has now revised its full-year forecasts. Sales and net
income were revised downward, while operating income and ordinary
income were revised upward.
The revision was due to the change in the planned release of three inhouse distributed game titles from this fiscal year to next, strong
performance of mainstay IP titles on the whole, and the implementationof impairment losses in the third quarter.
Full-year sales were revised downward by 2.3 billion yen from 13 billion
yen to 10.7 billion yen. The main reason for the downward revision was achange in the release dates of three new titles.
Operating income was revised upward by ¥200 million, from ¥2 billion to¥2.2 billion. This is due to the generally strong performance of existing
titles and a decrease in R&D expenses compared to the previous
forecast, although the contribution to profit from three new titles isexcluded. Ordinary income was also increased by 200 million yen.
Net income attributable to the parent company decreased by 100 million
yen from 1.2 billion yen to 1.1 billion yen. The decrease was due toimpairment losses incurred in the third quarter, despite the increase inordinary income.
After the revision, the company still expects to increase both sales andincome year-on-year, and the forecast for the annual dividend (year-enddividend) of 5 yen per share remains unchanged.

Please see the last page for disclaimer.

Revision of Full-Year
Earnings Forecast

January 31, 2023
Global IR, Inc.

GIR Earnings View (cont.)

The outlook for the fourth quarter (January-March) is slightly weakerin light of the revised full-year forecast.
Sales will be at 2.32 billion yen, down 5% YoY; operating income to be
99 million yen, down 42% YoY; and net income attributable to ownersof the parent at 66 million yen loss, compared to a loss of 45 million
yen in Q4 FY03/2022.
We believe this is a generally reasonable assumption, mainly due tothe fact that the fourth quarter has fewer events for mainstay titles andsales are calmer than other quarters, and that R&D expenses are toincrease compared to the same period last year.
Next, we will inspect the status of the three in-house distributed game
titles whose releases were postponed.
First, GGGGG is undergoing an open beta test in Japan in January2023 to check its progress. 2023 (next fiscal year) release isscheduled.

Outlook forthe fourth quarter
FY2023

Second, Wizardry Variants Daphne is scheduled for market testing by
the end of March 2023, which is also making progress. This one isalso scheduled for release in 2023 (next fiscal year).
Third, Unannounced Title (developed by studiorex) had its release
date postponed, although no specific information was announced.
These were followed by the disclosure of two titles scheduled forrelease in 2023. One is the mobile game Evil Prince and the Puppet
and the other is Tokyo Stories for PC and consoles.

New businesses show steady progress.

New Business Progress

In the publishing business among new businesses, the light novel
label "DRE Novels" has been published monthly since October
2022. Of these, BLADE & BASTARD –Ashes are Warm, Labyrinths
are Dark- was published in December, and the response was sostrong that a reprint was decided. In February, Troubles withexorcist daughter Nicola will be published, which won the Drecom
Media Grand Prix "Gold Prize".
Rooot, a Twitter-based fan community promotion service,continues to expand steadily.
The search for commercialization in the Web3 area is alsocontinuing.

Drecom (3793) FY 3/2023 Third Quarter Result

1January 31, 2023
Global IR, Inc.

The company revised its full-year results in this earnings
announcement. Although the release of three in-house distributed
games have been postponed to the next fiscal year, the company islikely to achieve high profit margins and profitability this fiscal year,
supported by the strong performance of its mainstay IP titles.
Needless to say, the key to next fiscal year's performance will be themonetization of the three new game titles, which have been delayed.
If this goes well, it will become more realistic for the company todeliver sustainable top line growth of +20% or more together with a
15% operating margin, supported by improved visibility of subsequent
game pipeline and smooth ramp-up of new businesses. The
company's corporate value is expected to reach an important turning
point, and will likely attract increased attention.

Summary

Financial Data (Consolidated: Quarterly)Statements of Income
Accounting period

Sales
YoY
Gross Profit
YoY
Gross Profit Margin
SG&A
YoY
Operating income
YoY
Operating income
marginOrdinary income
YoY
Net income
YoY
Net income margin(Millions of yen)

FY
FY03/2020 03/2021

FY 03/2022

FY 03/2023
Old
New
Q1-Q4CE Q1-Q4CE

Q1-Q4

Q1-Q4

Q1

Q2

Q3

Q4

Q1-Q4

Q1

Q2

Q3

Q4CE

10,150-5%
2,192
53%
21.6%
1,575-22%617
6.1%

11,841
17%
3,997
82%
33.8%
1,944
23%
2,053
233%
17.3%

2,661
-19%
1,040
-3%
39.1%
536
21%
504
-19%
18.9%

2,523
-12%
957
8%
38.0%
494
7%
463
8%
18.4%

2,893
-3%
1,023
-9%
35.4%
570
17%
452
-28%
15.6%

2,450
-9%
776
-16%
31.7%
605
10%
171
-54%
7.0%

10,528
-11%
3,797
-5%
36.1%
2,205
13%
1,591
-22%
15.1%

2,927
10%
1,308
26%
44.7%
491
-8%
817
62%
27.9%

2,873
14%
1,321
38%
46.0%
530
7%
790
71%
27.5%

2,579
-11%
1,058
3%
41.0%
566
-1%
492
9%
19.1%

2,319
-5%

13,00023%

10,700
2%

99
-42%
4.3%

2,000
26%
15.4%

2,200
38%
20.6%

636
711
7.0%

2,019
218%
1,625
128%
13.7%

492
-19%
300
-36%
11.3%

448
6%
311
-13%
12.3%

439
-29%
241
-49%
8.3%

160
-56%
-45
-114%
-1.8%

1,541
-24%
807
-50%
7.7%

810
64%
521
74%
17.8%

737
65%
534
72%
18.6%

477
9%
110
-54%
4.3%

74
-54%
-66

1,900
23%
1,200
49%
9.2%

2,100
36%
1,100
36%
10.3%Source: Global IR, Inc. based on company securities reports and company IR materials.

Drecom (3793) FY 3/2023 Third Quarter Result

2-2.8%

January 31, 2023
Global IR, Inc.

Financial Data (Consolidated: Full Year)Per Share Data(Consolidated)Year Ending

Total number of shares issued andoutstanding (thousand shares)
EPS

FY 3/2017

FY 3/2018

FY 3/2019

FY 3/2020

FY 3/2021

FY 3/2022

14,371

28,742

28,81928,89428,97629,073

29.7

-7.2

-60.5

25.0

57.0

28.3

EPS Adjusted

29.7--25.0

56.9

28.3

BPS113.2

106.7

47.9

74.2

132.9

159.1

DPS0.0

0.0

0.0

0.0

0.0

5.0

Cash flows from operating activities(Millions of yen)
FY 3/2017214

FY 3/2018299

FY 3/2019
462

FY 3/2020
382

FY 3/2021
627

FY 3/2022
537

846

-79

78691

3196

1603

Cash flows from investing activities-456-1,958-123-101-1140-1766

Cash flows from financing activities

1,345

2,288

-271

-1,188969-388

FY 3/2017

FY 3/2018

FY 3/2019

FY 3/2020

FY 3/2021

FY 3/2022

Return on Assets (ROA)

16.7

-0.4

-16.89.5

25.2

16.0

Return on Equity (ROE)

35.5

-6.6

-78.3

41.0

55.0

19.4

Equity Ratio

47.0

33.2

19.6

32.9

39.5

46.9

Year Ending
Depreciation and amortization
Cash flows from operating activities

Financial Data(%)
Year Ending

Source: Prepared by Global IR, Inc. based on company securities reports
Note: Rounded to the nearest million yen, rounded to one decimal place * Calculated by Globl IR, Inc.

Drecom (3793) FY 3/2023 Third Quarter Result3

January 31, 2023

Disclaimer
This report has been prepared by Global IR, Inc. (GIR) under a contractual arrangement with the company
described in this report (“the company”). The report is provided for informational purposes only. It is notintended to solicit or recommend investment in the company’s securities. While the information and views
contained in this report have been obtained from sources that GIR believes to be reliable, or created on thebasis of publicly available information, no guarantee is offered with regard to their accuracy or completeness.
Our analysis is in any case provided with an emphasis on accuracy and objectivity, and pays the utmost
attention to neutrality and independence. In addition, based on discussions with the relevant business owners,
and others, and original on research, perspectives that we consider important to investors have been
provided, on the basis that they are GIR's own opinions. GIR is not responsible for any loss or damage resulting
from the use of this report. Investment decisions in the relevant corporate stock are at the reader's own
judgment and responsibility.

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