COMPANY RESEARCH AND ANALYSIS REPORT

Terilogy Co., Ltd.
3356
TSE JASDAQ Standard

28-Jul.-2021
FISCO Ltd. Analyst

Masanobu Mizuta

FISCO Ltd.
https://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Company profile and business description. .................................................................................................

01

2. In the FY3/21 results, set new record-high profits even during the COVID-19 . ...........................................

01

3. The Company’s FY3/22 results forecasts are conservative . ........................................................................

02

4. The new medium-term management plan shows the path to net sales of ¥10bn. .......................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. An IT solutions provider that continues to meet the demands of the present age........................................

03

2. Expanded its business areas to broadband, mobile, and security with the corporate IP network
business as its original business........... ......................................................................................................

04

3. Core competence is its ability to find “emerging technologies” and “marketable products” and“to respond to the market”. . ................... ......................................................................................................

06■Business description---------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Develops its business in four sections by products and services................................................................

08

2. Network Section..........................................................................................................................................

08

3. Security Section...........................................................................................................................................

09

4. Monitoring Section. . .....................................................................................................................................

10

5. Solutions Services Section.. .........................................................................................................................

10■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 13
1. In the FY3/21 results, every profit item was a new record high. ...................................................................

13

2. Is maintaining a sound financial structure that can absorb cash outflows from dividend
payments and M&A.....................................................................................................................................

16■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 20
1. The FY3/22 results forecasts are conservative . . ..........................................................................................

20

2. The new medium-term management plan shows the path to achieve net sales of ¥10bn. ..........................

21

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

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english█ Summary
An IT solutions provider whose strengths include abilities to findemerging technologies and marketable products and to respond tothe market. Has announced a new medium-term management planthat shows the path toward achieving net sales of ¥10bn.
1. Company profile and business description
Terilogy Co., Ltd.<3356> (hereafter, also “the Company”), which is an IT company, has been providing IP network-related products and state-of-the-art products and solutions in the network security field since its foundation in July
1989. Currently under its umbrella in the Terilogy Group are 4 consolidated subsidiaries (including a subsidiary’s
subsidiary) and 1 non-equity-method affiliate.
Its corporate philosophy is “to respond to the needs of our customers and ensure their full satisfaction,” and in the
Heisei era, it expanded its business areas to contribute to the construction and development of an internet society
under the slogan “In collaboration with customer.” Today, in the Reiwa era, the Company is working to provide
solutions to meet the demands of the present age such as productivity improvements, work-style reforms, the new
way of life under the novel coronavirus pandemic (COVID-19) and for inbound demand under its new slogan “No.
1 in Quality.”
From the Company’s corporate history, it can be read that it has quickly ascertained the trends of broadband, mobile,and cybersecurity and expanded its business areas to reflect them with the corporate IP network business as its
original business. Also, the Company considers its own strengths to be 1) its ability to find “emerging technologies”
and “marketable products” and “to respond to the market,” 2) wide selection of customer solutions, 3) diverse
service provision approaches, 4) technical capabilities rooted in experience, and 5) global response capabilities. In
particular, the first strength listed above is used in its partnering strategy, which is a feature of the Company, andthis is considered to be the core competence on which all other strengths are based.
The Company is currently developing business activities in four sections by products and services: the Network
Section, Security Section, Monitoring Section, and Solutions Services Section. Its features include a maintenancesystem operating 24 hours a day, 365 days a year and an excellent distribution function that combines direct andindirect sales.
2. In the FY3/21 results, set new record-high profits even during the COVID-19
In the FY3/21 consolidated results, net sales increased 16.1% year-on-year (YoY) to ¥4,701mn, operating income
grew 104.7% to ¥540mn, and ordinary income rose 88.5% to ¥543mn. The operating income margin was 11.5%,
increasing significantly by 5.0 percentage points (pp) YoY mainly due to the improved cost of sales ratio. Looking atorders also, orders received during the period increased 36.8% to ¥5,455mn, while outstanding orders at the endof the period rose by 250.1% on the end of the previous period to ¥1,055mn, so results were extremely steady.
Although net sales did not reach their record high since the Company’s foundation (¥6,364mn in FY3/05), every
profit item achieved a new record high even during COVID-19.

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01 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Summary

The Company is also maintaining a sound financial structure. At the end of FY3/21, the equity ratio had declined
to 46.6% (53.9% at the end of the previous period) and the current ratio to 169.9% (209.4%). Also, the D/E ratio(interest - bearing debt / shareholders’ equity) was 0.13 times (0.17 times) and net cash (cash and deposits interest-bearing debt) was ¥2,070mn (¥1,508mn), so both had further improved. On a stand-alone basis, retained
earnings, from which the Company normally funds dividend payments, were ¥502mn (¥156mn), so its capacity tofund dividend payments was also supplemented.
3. The Company’s FY3/22 results forecasts are conservative
The Company has announced its initial forecasts for the FY3/22 consolidated results, of net sales to increase 10.6%
YoY to ¥5.2bn and operating income to decrease 68.5% to ¥170mn. It can be said to be forecasting a decline
in profits due to the effects of starting to adopt “the new accounting standard for recognizing revenue.” But theassumption for the forecasts of an operating income margin of 3.3% would seem conservative compared to the value
the Company is actually capable of (around 7%). It plans to once again pay a period-end dividend per share of ¥5.
4. The new medium-term management plan shows the path to net sales of ¥10bn
The Company has stated that it will “implement measures for public relations and publicity activities aimed at
improving medium- to long-term and sustainable corporate value, while also aiming to maximize corporate value.”In May 2021 as one part of these efforts, it announced its new three-year medium-term management plan.
For FY3/22, the plan’s first fiscal year, the new medium-term management plan incorporates “numerical targets
for organic growth,” “the basic strategy and priority measures to achieve the targets” and “the basic approach for
implementing the M&A and business alliance strategy.” More specifically, it shows the path toward achieving net
sales of ¥10bn.
Key Points
An IT solutions company that has accumulated a track record in the 30 years since its foundation. The Company,
which forms a corporate group with four consolidated subsidiaries (including second-generation subsidiaries)
and one affiliated company counted for using the equity method as its affiliates, is currently conducting businessactivities through four sections: the Network Section, Security Section, Monitoring Section, and Solutions
Services Section• From the Company’s corporate history, it can be read to have a track record of accurately ascertaining thetrends of the times and skillfully changing its business focus areas to reflect them
• Also utilizing its core competence, its ability to find “emerging technologies” and “marketable products” and “torespond to the market,” in its partnering strategy• In the FY3/21 results, achieved higher sales and profits for the 4th consecutive period even during the COVID-19• The Company’s FY3/22 results forecasts appear conservative• The new medium-term management plan announced in May 2021 shows the path to achieving net sales of¥10bn•

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

02 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.

28-Jul.-2021

3356 TSE JASDAQ Standard

https://www.terilogy.com/english

Summary

Results trend(¥mn)

Net sales (left)(¥mn)

Operating income (right)

6,000

540

600
5,200

4,701

5,000

500

4,051
3,660

4,000

400

3,221
3,000

300

2,000
1,000

244

263

200
170

166

0

100
0

FY3/18

FY3/19FY3/20FY3/21

FY3/22 E

Note: From FY3/22, adopted the “accounting standard for recognizing revenue”
Source: Prepared by FISCO from the Company’s securities report and financial results█ Company profile
An IT solutions provider established in 1989.
Is progressing a business strategy that leverages its “abilities to findemerging technologies and marketable products and to respond tothe market”
1. An IT solutions provider that continues to meet the demands of the present age
The Company is an IT company that has been providing IP network-related products and cutting-edge products
and solutions in the network security field since its foundation in July 1989. In December 2004, it was newly listedon the JASDAQ Securities Exchange (currently, the Tokyo Stock Exchange (TSE) JASDAQ Standard).
Its corporate philosophy is “to respond to the needs of our customers and ensure their full satisfaction,” and in the
Heisei era, it expanded its business areas to contribute to the construction and development of an internet society
under the slogan “In collaboration with customer.” Today, in the Reiwa era, the Company is working to provide
solutions to meet the demands of the present age such as productivity improvements, work-style reforms, the new
way of life under COVID-19 and inbound demand under its new slogan “No. 1 in Quality.”

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

03 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Company profile

2. Expanded its business areas to broadband, mobile, and security with the corporate IP network businessas its original businessLooking at the Company’s corporate history, it can be read that it has quickly ascertained the trends and expanded
its business areas to reflect them with the corporate IP network business as its original business. These include 1) the
rapid shift from internet communication using telephone lines and ISDN lines to high-speed internet communication
using broadband lines, such as ADSL and FTTH, 2) the arrival of the mobile era against the backdrop of the spreadof smartphones, and 3) the increasing importance of cybersecurity in an internet society.
The Company’s corporate IP network business began in 1990 when it entered into a distribution contract with
Wellfleet of the US and started to provide routers (telecommunications equipment for relaying two or more different
networks), which are one of the main products to build IP networks. Although Wellfleet does not exist today, in 1998,
the company was acquired by Nortel (Canada), the world’s second largest computer network device company atthe time, to compete against Cisco Systems <CSCO>* of the US founded in 1984, which was the largest company
back then. The Company’s discovery of Wellfleet in 1990 can be said to be a good example of its ability to find“emerging technologies” and “marketable products.” Currently, the Company is a supplier that handles the routersmanufactured by Cisco Systems.
*	Listed companies noted in this report are presented in the format “company name + <securities code>” on first mention,and then presented without the securities code on second and subsequent mention. Unlisted companies are presented
on first mention with the company name followed by denotation as to the type of business entity, and then presented
without the business entity denotation on second and subsequent mention.
However, securities codes and business entity type are noted on first mention only in tables depicting company history, etc.

In the broadband area, in 1999, the Company started to provide ADSL-connection software, and subsequently
it developed hit products with more than 10 million users, which became a bridgehead into a business for major
telecommunication companies. Also, in 1999, it concluded a distribution contract with Redback Networks of the US,
and through the introduction of broadband access servers and other products, it contributed to building the FTTH
networks of various electric power companies. Also, in mobile-related products, it realized growth for DNS/DHCP
appliances manufactured by Infoblox <BLOX> of the US (devices to issue an IP address) and Company-developed
solutions for monitoring networks have become its core products following the spread of smartphones. In 2003,
the Company was the first in Japan to conclude a distribution contract with Infoblox, which was founded in 1999.
Currently, DNS/DHCP appliances manufactured by Infoblox are handled by major companies in Japan and haveacquired the position of being the de-facto standard, so this can also be evaluated as indicating the Company’s“foresight.”
In the security field, the Company has provided wide-ranging solutions by concluding a domestic (Japan) master
reseller contract with TippingPoint of the US, when it was independent in 2004 (it was acquired by Hewlett-Packard<HPQ> of the US in 2010 and acquired by Trend Micro <4704> in 2015) followed by concluding reseller contracts
with OneSpan <OSPN> (formerly VASCO Data Security of Belgium) in 2007, Lastline of the US in 2012 (which was
acquired by VMware <VMW> of the US in 2020), RedSeal of the US in 2015, Tempered Networks of the US and
KELA of Israel in 2016, and Nozomi Networks of the US in 2018 (domestic (Japan) reseller contract with Tempered
Networks), which is enabling it to provide solutions over a wide range.

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04 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Company profile

Company history
July 1989

Terilogy Co., Ltd. established in Kanda, Chiyoda-ku, Tokyo. Enterprise networks business launched.

Apr. 1991

Maintenance outsourcing contract signed with Toshiba Engineering Corporation (now Toshiba IT-Services Corporation) andmaintenance service business launched.

May 1996

Outsourcing contract signed with Tokyo NTT Data Communication Systems Corporation (now NTT Data Business Systems
Corporation) and customer solutions business launched.

Nov. 1999

Distribution contract signed with American company Redback Networks, Inc. and broadband network business launched,encompassing sales of Redback Networks broadband access servers, Ethernet software from American company Network
Telesystems, Inc. (now Affinegy, Inc.), and other such products.

Jan. 2003

DNS/DHCP servers distribution contract signed with Infoblox Inc. <BLOX> of the US.

Oct. 2004

Domestic (Japan) master reseller contract signed with American company TippingPoint Inc. (now Trend Micro Inc. <4704>).

Dec. 2004

Listed on the JASDAQ Securities Exchange.

Sep. 2005

Certified under ISO 27001 information security management system (ISMS) standards.

Nov. 2005

Basic agreement on business collaboration signed with UNIADEX, Ltd. based on a capital tie-up agreement.

Dec. 2006

Domestic (Japan) master reseller contract signed with American company NETSCOUT Systems, Inc.

Feb. 2007

Distribution contract signed with Belgian company VASCO Data Security, Inc. (now OneSpan Inc. <OSPN>).

Mar. 2007

Certified under ISO 14001 environmental management system (EMS) standards.

Oct. 2008

Distribution contract signed with Singaporean company eG Innovations Pte Ltd.

Apr. 2010

Following merger of JASDAQ Securities Exchange and Osaka Securities Exchange, Terilogy listed on Osaka Securities Exchange
JASDAQ.

Aug. 2010

Domestic (Japan) reseller contract signed with American company APCON, Inc.

Feb. 2011

Asia-Pacific distribution contract signed with American company SevOne, Inc.

June 2012

Sales begun of momentum, a unique probe software product developed in-house at Terilogy.

Sep. 2012

Distribution contract signed with Lastline Inc. of the US (now VMware, Inc. <VMW>).

July 2013

Following merger of Osaka Securities Exchange and Tokyo Stock Exchange, Terilogy listed on TSE JASDAQ Standard.

July 2013

Fullflex ZG master reseller contract signed with Accense Technology, Inc.

July 2015

Sales begun of CloudTriage, a unique, cloud-based operations monitoring service by Terilogy.

Dec. 2015

Distribution contract signed with American company RedSeal, Inc.

Apr. 2016

Distribution contract signed with Taiwanese system integration company SYSCOM.

Oct. 2016

Exclusive domestic reseller contract signed with American company Tempered Networks, Inc.

Nov. 2016

Distribution contract signed with Israeli company KELA.

Jan. 2017

Basic agreement on business collaboration signed with NCXX Group Inc. <6634> based on a capital tie-up agreement.

Jan. 2017

Basic agreement on joint marketing for security products signed with FISCO Ltd. <3807>.

Jan. 2017

Basic agreement on business collaboration in the area of transaction security with Fisco Cryptocurrency Exchange Inc.

Jan. 2017

Basic agreement on business collaboration in the area of joint product development for blockchain technology applications signedwith SJI Ltd. (now CAICA Inc. <2315>).

Mar. 2017

Wholly owned subsidiary Terilogy Worx Corporation established.

Dec. 2017

Shares required for ICT business corporation establishment acquired by ITX Corporation, and wholly owned consolidated
subsidiary Terilogy Serviceware Corporation established.

Apr. 2018

Distribution contract signed with American company Nozomi Networks Inc.

July 2018

Sales begun of EzAvater, Terilogy’s unique, ultra-simple robotic process automation (RPA) tool.

Jan. 2019

Business tie-up agreement signed with Israeli company Harel-Hertz Investment House Ltd.

May 2019

Launched security risk assessment services for industrial control systems involving critical infrastructure, factory, and building
management jointly with BroadBand Security, Inc. <4398>.

June 2019

Business tie-up with American company Sumo Logic, Inc.

July 2019

Consolidated subsidiary Terilogy Worx Corporation concluded distribution contract with American company BitSight Technologies,
Inc.

Aug. 2019

Distribution contract concluded with Israeli company TechSee Augmented Vision Ltd.

June–Sept. 2019

Distribution contracts for Company-developed RPA tool EzAvater concluded with Panasonic Solution Technologies Co., Ltd.,
Resona Gate Co., Ltd., Yamazakibuneidou, Inc., Nextage Co., Ltd., islenet Inc., and UCHIDA ESCO Co., Ltd. <4699>.

Feb. 2020

Distribution contracts for Company-developed RPA tool EzAvater concluded with Hitachi Systems, Ltd.

Mar. 2020

Consolidated subsidiary Terilogy Serviceware Corporation concluded a business tie-up with Towa Engineering Corporation.

Mar. 2020

Distributor contract concluded with Israeli company Radware Ltd. <RDWR>.

Apr. 2020

Established joint venture with Vietnam Cyberspace Security Technology JSC, a subsidiary of Vietnamese telecom provider Hanoi
Telecom, based on a strategic business tie-up.

May 2020

Consolidated subsidiary Terilogy Serviceware Corporation acquired shares of IGLOOO Inc., making it a subsidiary.

June 2020

Distributor contract for Company-developed RPA tool EzAvater concluded with Computer Engineering & Consulting Ltd. <9692>.

Nov. 2020

The Company and VNCS Global Solution Technology Joint Stock Company signed a memorandum of understanding with
BroadBand Security regarding business development in Vietnam related to PCI DSS international security standards.

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

05 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Company profile

Nov. 2020

Consolidated subsidiary IGLOOO formed a business alliance with unbot inc., a digital marketing business serving China, whereby
IGLOOO acts as an exclusive partner for promoting European, US, and Australian tourism in the Chinese market.

Nov. 2020

CAICA Technologies Inc. launched sales of the Company-developed EzAvater RPA tool.

Dec. 2020

RICOH JAPAN Corp. and NIPPON TELEGRAPH AND TELEPHONE EAST CORPORATION began handling Mieru-Tsuyaku, amultilingual video interpretation service of consolidated subsidiary Terilogy Serviceware Corporation.

Mar. 2021

Acquired certification as a DX certified business
Acquired the shares of CRESEED Corp. and made it a subsidiary

Apr. 2021

Consolidated subsidiary Terilogy Worx concluded a distribution contract with GitGuardian of France

May. 2021

Concluded a distribution contract with Pebble Corporation for EzAvater, an in-house developed RPA tool

Source: Prepared by FISCO from the Company’s securities report and website

3. Core competence is its ability to find “emerging technologies” and “marketable products” and “torespond to the market”
The Company considers its strengths to be 1) its ability to find “emerging technologies” and “marketable products”
and “to respond to the market,” which is the discernment required to find and identify progressive, leading-edge
technologies and deploy them in markets in ways adapted specifically to local customers; 2) wide selection of
security and safety solutions for varying applications, encompassing everything from network infrastructure tocommunication endpoints; 3) flexible provision of diverse services and products supported by a product lineup
covering everything from products utilizing leading-edge technologies through to maintenance services, software
products developed in-house, and new services; 4) stable and proven technical capabilities rooted in experiencesince its founding through three decades of reliable, customer-tailored service provision; and 5) global response
capabilities, including the rapidly growing markets of emerging nations in Asia. Each of these strengths is backed
by a track record of results, but in particular, the Company’s ability to find “emerging technologies” and “marketableproducts” and “to respond to the market” would seem to be its core competence on which all of the other strengths
are based.
The Company’s ability to find “emerging technologies” and “marketable products” lies in “accurately ascertaining
and incorporating the trends of the times into its business areas, finding the latest technologies of overseas venturecompanies and concluding distributor and other contracts,” and it has no shortage of experience in this regard. In
addition to Wellfleet and Infoblox, which were introduced as good examples in the previous section, we can alsomention TippingPoint (Trend Micro), Belgian company OneSpan, and American company Lastline (VMware) as
examples in the security field.
TippingPoint is a cybersecurity company specializing in IPS (intrusion prevention systems) that was acquired byTrend Micro in 2015 for approximately US$0.3bn. However, the Company concluded a domestic (Japan) master
reseller contract and accumulated a track record with TippingPoint 16 years before its acquisition, and it continues
to have a presence in which it is relied on by Trend Micro. Also, in 2007, the Company became the first in Japan tohandle OneSpan’s one-time password technology, which today has been adopted by all of Japan’s megabanks andbecome an essential part of internet banking. Moreover, in 2012, the Company started selling the targeted-attack
countermeasure cloud services of Lastline of the US (which was acquired by VMware of the US in 2020), and as isclear from the trend in the number of targeted-attack emails ascertained by the National Police Agency in recent
years (2014: 1,723 cases→2015: 3,828 cases→2016: 4,046 cases→2017: 6,027 cases→2018: 6,740 cases
cases→2019: 5,301 cases→2020: 4,119 cases), malware and other targeted attacks have come to be recognized
as a major threat. This example would seem to clearly demonstrate the Company’s ability to accurately ascertain
the technological trends and cutting-edge technologies that it should precisely focus on as its business areas andits ability to find “emerging technologies” and “marketable products” with “foresight.”

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06 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Company profile

So why do overseas venture companies select the Company as their partner? The reason is its high ability “torespond to the market,” which has been fine-tuned since its foundation by implementing a management strategy
that is supported by its corporate philosophy of prioritizing the needs and satisfaction of customers.
The sources of the Company’s ability “to respond to the market” are 1) its ability to combine imported technologies
with its proprietary technologies to develop solutions with high levels of customer satisfaction, and 2) its ability to
fill-in missing parts by fully utilizing an alliance and M&A strategy. In general, even if venture companies are able tocreate good technologies and products, in many cases they are inferior to major companies in the value chain for
aspects like maintenance and sales. But in the case of the Company, in 1991, two years after it was founded, it
concluded a maintenance outsourcing contract with Toshiba IT-Services Corporation (formerly Toshiba Engineering
Co., Ltd.). For sales, one of its features is that it has not only established an indirect sales network, including throughalliances, but that it has also worked to strengthen its direct sales force, such as by acquiring customer touch points
through business and capital alliances and M&A.
The Company has been highly evaluated by influential customers for its active utilization of a partnering strategy
for the entire value chain, from product development (combining imported technologies with its proprietary technologies) through to maintenance (in which the Company itself identifies problems and then outsources the actual
maintenance work) and sales (using both direct and indirect agency network sales), and it is efficiently building an
excellent customer base (more than 300 companies, mainly major companies, and it conducts business directly witharound 90% of customers). This has formed the “excellent distribution capabilities in Japan” (a wealth of customer
information, a maintenance system that operates 24 hours a day, 365 days a year, and extensive customer contact
points through combining direct sales with indirect sales) and it has become the deciding factor for overseas venturecompanies in choosing the Company as their partner in Japan.
In March 2020, the Company signed a distributor agreement with Israeli company Radware <RDWR>, which isone of the global leaders in areas such as network virtualization and cybersecurity solutions and is a publicly listedcompany on the NASDAQ market in the US. A press release from Nihon Radware K.K. stated, “Terilogy has a trackrecord of creating Japanese markets by providing numerous overseas cutting-edge technologies to the Japanesemarket. Terilogy has achieved stable operation and management of technologies and products that previously had
no track record in the Japanese market, and has earned the trust of Japanese customers for many years. Radware
expects synergies between the strong solution proposal and support capabilities provided by Terilogy and thetechnical capabilities that have allowed Radware to be regarded as an industry leader, and has decided to conclude
a distributor contract this time, judging that Radware can provide integrated security solutions to Japanese corporate
customers, including main products such as Cloud WAF Service, Bot Manager and Cloud Workload Protection.”
We view this as proof that the Company’s ability to find “emerging technologies” and “marketable products” and“to respond to the market” are viewed positively by overseas technology companies.
The Company’s value chain

Source: The Company’s website

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07 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english█ Business description
Engages in business in four sections: the Network Section, Security
Section, Monitoring Section, and Solutions Services Section
1. Develops its business in four sections by products and services
The Company does not disclose segment information, but it develops its business activities in four sections according
to products and services: the Network Section, Security Section, Monitoring Section, and Solutions Services Section.
Diagram of the business structure

Source: The Company materials

2. Network Section
In the Network Section in FY3/21, net sales were ¥1,616mn, which provided 34.4% of total net sales. The main
products and services it handles are 1) network products (routers, switches, wireless LAN, and DNS/DHCP), 2)
design and build of in-company information and communication systems and infrastructure, and 3) sales of a wide
range of network-related products, such as TV conferencing systems, and provision of professional services. The
Company takes pride in its ability to provide solutions optimized to meet customer needs and the accumulation ofa strong track record over the 30 years since its foundation. In addition, it has a maintenance system operating 24
hours a day, 365 days a year to support the networks and other devices provided by this section.

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

08 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Business description

Main products in the Network Section

Source: The Company’s website

3. Security Section
In the Security Section in FY3/21, net sales were ¥1,628mn, which provided 34.6% of total net sales and solidifying
it as the Company’s main business pillar. The main products and services it handles are 1) network security products(firewalls, intrusion detection and prevention countermeasures, information leakage countermeasures, etc.), 2)
security authentication infrastructure (identifying service users on a network), and 3) security systems to prevent
unauthorized transactions (one-time password products). In addition, it has a maintenance system operating 24
hours a day, 365 days a year to support the security devices and software products provided by this section.
Main products in the Security Section

Source: The Company’s website

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

09 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Business description

4. Monitoring Section
In the Monitoring Section in FY3/21, net sales were ¥520mn, which provided 11.1% of total net sales, and afeature of this section is the handling of Company-developed products. The main products and services it handles
are 1) packet analysis using a Company-developed product (momentum), 2) cloud-based monitoring services(CloudTriage), and 3) network operation, management, and monitoring devices. In addition, it has a maintenancesystem operating 24 hours a day, 365 days a year to support the Company-developed products (momentum);
network operation, management, and monitoring devices; and software products provided by this section.
The Company’s own brands include momentum (network packet capture products developed completely in-house),which constitutes the core of the Monitoring Section, and CloudTriage (IT systems operation monitoring cloudservices managed under its own brand), which uses a monthly billing model and forms part of the support businessdivision. In momentum, data (packets) exchanged on a network are collected in a storage device, analyzed andmade visible in order to validate service quality, specify locations of defects, and provide support measures. It is,
so to speak, a drive recorder-like solution on a network, and the Company has successfully acquired importantcustomers, such as major mobile communication carriers. Currently, it is working on developing new usage scenes,
including network monitoring, security measures, and troubleshooting responses. Also, CloudTriage measures theoperation conditions of IT systems from the user’s viewpoint, and in the event of a decline in performance, like adelay in remote access, it specifies the cause. It is provided inexpensively as a monthly billing cloud service.
Main products in the Monitoring Section

Source: The Company’s website

5. Solutions Services Section
In the Solutions Services Section in FY3/21, net sales were ¥936mn, which provided 19.9% of total net sales. The
section’s main products and services encompass 1) a Company-developed software robotic process automation(RPA) tool (EzAvater), 2) a multilingual real-time video interpretation service (Mieru-Tsuyaku), 3) a cloud-based,managed VPN service (MORA VPN Zero-Con), 4) a corporate internet connection service (MORA Hikari), 5) ahigh-speed mobile data communication service (MORA Mobile), 6) web conference services (MVC and Zoom), 7) avisual contactless remote support service (TechSee) using artificial intelligence (AI) and augmented reality (AR), and8) business involving pre-travel, on-travel, and post-travel services provided by second-tier subsidiary IGLOOO and9) operational support and agency business for information systems provided by consolidated subsidiary CRESEEDCorp.

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10 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Business description

Main products in the Solutions Services Section

Source: The Company’s website

The core of this section is formed by Terilogy Serviceware Corporation (changed corporate name from ITX
Corporation’s corporate ICT services business that was acquired from the Nojima Corporation <7419> Group in
December 2017), and in its M&A strategy, the Company is acquiring new business domains and customer basesof a medium-sized and SME enterprise and retail stores such as chain stores operating nationwide and wholesale
stores, both of which it has had few in the past. The point to focus on for this is the lineup of new products matched
to medium-sized and SME customer groups, such as the RPA tool (EzAvater) which is attracting attention forrealizing work-style reforms and improved work efficiency, and the multilingual, real-time video interpretation service(Mieru-Tsuyaku), which can be used to respond to inbound demand.
The features of EzAvater include it is extremely easy (robots for everyone = intuitive operations to enable the creationof scenarios to automate routine tasks), it makes delays unlikely (robots work at the speed of the system, and it
creates templates for exception processing and realizes stable operations), it does not matter what app is used(through the adoption of image recognition technology, work can be automated regardless of the app, as long as it
is operating on Windows) and it can start small (can be introduced starting from a single PC). Due to these features,
EzAvater overcomes many of the weaknesses of RPA tools, such as that if there is no specialist IT department, it
is difficult to create the robots and the introduction costs and maintenance burden are large. This software made it
possible for a utilization method that creates robots that reflect the needs of work sites in each department and tohave them carry out daily management tasks. In fact, EzAvater has accumulated many positive reviews on ITreview,which is Japan’s largest review site managed by ITcrowd Corp. for reviews by real users of corporate IT products
and cloud services, and in the ITreview Grid Award 2021 Winter, it received the High Performer award.
Also, for sales of EzAvater, the Company is actively utilizing a partner strategy (it has introduced a gold partner
system) from the aim of wanting to penetrate a wide range of user groups. During 2019, it concluded distribution contracts with NCXX Solutions Inc., Panasonic Solution Technologies Co., Ltd., Resona Gate Co., Ltd.,
Yamazakibuneidou, Inc., Nextage Co., Ltd., and UCHIDA ESCO Co., Ltd. <4699>. Since 2020 also, it has concluded
distribution contracts with Hitachi Systems, Ltd., Computer Engineering & Consulting Ltd. <9692>, and Pebble
Corporation, and it is working to expand sales channels.
Mieru-Tsuyaku is a video interpretation service that is available anytime, anywhere with one touch using a tablet or
smartphone with a call operator providing support, such as for customer service. It provides interpretation services inEnglish, Chinese, Korean, Thai, Russian, Portuguese, Spanish, Vietnamese, French, Tagalog, Indonesian, Nepalese,Hindi, and Japanese sign language for a flat rate (¥15,000 per month for the light plan, available from 9am to
9pm, and ¥25,000 per month for the standard plan, available 24 hours a day). The Company also offers a medical
interpreting option (only in English, Chinese, Korean, Portuguese, Spanish and Vietnamese ¥35,000 per month).

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11 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Business description

As of May 2021, Mieru-Tsuyaku had been introduced by 31 local governments, including Shinagawa City, Iizuka
City, Fukaya City, Higashiomi City, Nagareyama City, Nagaoka City, and Inazawa City; by 11 medical facilities,
including the Bureau of Social Welfare and Public Health Tokyo Metropolitan Government, Osaka Medical andPharmaceutical University Hospital, Osaka City General Hospital and by 18 other organizations, including The Bankof Yokohama, Ltd. (introduced into all branches),Tokyo Metropolitan Foundation TSUNAGARI, and Higashioumi
City Council Of Social Welfare. In addition, following its release by the Company on May 31 and in collaboration
with NIPPON TELEGRAPH AND TELEPHONE EAST CORPORATION, it has been indicated it will be introduced
into local government’s COVID-19 group vaccination venues outsourced to the AGEKKE CORPORATION Group(5 local governments and 16 group vaccination venues in Tokyo, Kanagawa Prefecture, Tochigi Prefecture, andFukushima Prefecture).
In May 2020, Terilogy Serviceware made a subsidiary of IGLOOO, which conducts an inbound media business.
IGLOOO is a company that provides pre-travel and post-travel services, of businesses to produce content andpromote overseas travel, centered on the operation of VOYAPON, an online media for travel to Japan for people
in Europe, the US, and Australia. Up until now, the Company has been providing the multilingual real-time videointerpretation service Mieru-Tsuyaku in the “during travel” domain for foreign tourists visiting Japan. IGLOOO’s
services are highly complementary and synergistic with those of the Company that have established positions as
industry leaders. Even during the “with COVID-19” era, it seems certain that the national policy aimed at making
Japan a popular destination will be restarted in some way, so the Company’s decision to make an offensive moveeven during this difficult time is worthy of praise.
Since joining the Terilogy Group, IGLOOO has conducted the following initiatives: 1) joined forces with MIKI TOURIST
CO., LTD., and ITP INC., to launch the International Travel Showcase Online Exhibit Support Package of services
to assist those wishing to take part in online travel exhibitions, particularly in Europe, the US, and Australia (August2020); 2) updated its VOYAPON inbound media service for Europe, the US, and Australia (August 2020); 3) launched
its VOYAPON STORE, a cross-border e-commerce website featuring narratives from the perspectives of foreign
nationals (September 2020); 4) entered into a business alliance with unbot Inc., which engages in digital marketingbusiness geared toward China, as an exclusive partner to promote tourism to Europe, the US, and Australia for
the Chinese market (November 2020); 5) launched the first cross-border e-commerce project for Europe, the US,
and Australia in collaboration with Yomitan Village, Okinawa Prefecture (April 2021), and 6) created a PR video
and implemented promotions for Yamanashi Prefecture, targeting the Middle East (May 2021). In such ways, itis accelerating business promotion and developing its presence to play a role for the Solutions Services Section.

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12 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english█ Results trends
The FY3/21 results greatly exceeded the initial Company forecasts
Absorbed the effects of the dividend payments and M&A to maintainfinancial soundness
1. In the FY3/21 results, every profit item was a new record highIn the FY3/21 consolidated results, net sales increased 16.1% YoY to ¥4,701mn, operating income grew 104.7% to¥540mn, ordinary income rose 88.5% to ¥543mn, and net income attributable to owners of parent increased 103.9%
to ¥437mn. Although net sales did not reach their record high since the Company’s foundation (¥6,364mn in FY3/05),
every profit item achieved a new record high. Looking at the rates of achievement of the FY3/21 results compared tothe initial forecasts, net sales were 112.5%, operating income was 270.1%, ordinary income was 271.5%, and net
income attributable to owners of parent was 312.6%, so each item was significantly higher than forecast. Looking
at orders also, orders received during the period increased 36.8% to ¥5,455mn, while outstanding orders at theend of the period rose by 250.1% on the end of the previous period to ¥1,055mn, so results were extremely steady.
Simplified income statement(¥mn)
FY3/16

FY3/17

FY3/18

FY3/19FY3/20FY3/21

Net sales

2,639

2,434

3,221

3,660

4,051

4,701

YoY

-5.9%

-7.7%

-

13.6%

10.7%

16.1%
2,757

1,890

1,709

2,197

2,256

2,537

-15.1%

-9.6%

-

2.7%

12.5%

8.7%

Gross profit

748

725

1,024

1,403

1,513

1,944

YoY

29.7%

-3.0%

-

37.0%

7.8%

28.5%

721

831

858

1,159

1,249

1,404

-8.6%

15.2%

-

35.0%

7.8%

12.4%

26

-105

166

244

263

540

-

-

-

47.0%

8.0%

104.7%

Cost of sales
YoY

SG&A expenses
YoY
Operating income
YoY

0

-97

173

229

288

543

YoY

-

-

-

32.3%

25.4%

88.5%

Net income

-19

-99

154

207

214

437

YoY

-

-

-

34.6%

3.5%

103.9%

Ordinary income

Note: Results are non-consolidated up to FY3/17, and from FY3/18 onwards, they are consolidated and include net income
attributable to owners of parent.
Source: Prepared by FISCO from the Company’s securities report and financial results

Looking at net sales by business section in FY3/21, they increased 80.3% YoY in the Network Section, decreased
1.1% in the Security Section, declined 21.5% in the Monitoring Section, and increased 10.7% in the Solutions
Services Section.
The factors in the background to the strong performance of the Network Section include 1) DHCP/DNS appliances
manufactured by Infoblox of the US (Infoblox IP address management servers) have entered a phase of replacement
purchases, and within Japan, there were 221 cases of replacement purchases for new models, which have increased
added-value from the addition of security functions, from the current model, for which around 500 units have alreadybeen shipped; 2) in a situation of the use of Wi-Fi and the progress of the GIGA School concept within companies
introducing teleworking and other reforms, progress was made for introductions of the Extreme Networks <EXTR>(formerly Aerohive) product, which is a cloud-based wireless LAN from the US; and 3) that customer take-up of
Radware products sold via sales partners since FY3/21 has been strong.
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13 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

The main Radware products which the Company handles in this business are 1) DDoS-fighting equipment andservices that autonomously protect against Dos/DDoS attacks, also known as “service stop attacks”; 2) Load
Balancer (a product that distributes the load on a server allowing it to operate stably), which boasts a large trackrecord in the Japanese market; 3) multihoming equipment, which is the de facto standard for line load balancing; 4)
Cloud WAF Service that achieves the highest level of web application security in the industry; 5) Bot Manager that
protects all channels, such as web applications, mobile applications, and API, from automated threats (bots); and
6) Cloud Workload Protection that comprehensively protects cloud assets. Products 2 and 3 are network related,while the rest are security related.
The Company became the primary distributor for Israeli company Radware in Japan following the conclusion of a
distributor contract in March 2020, and it seems that the handover from the company that was previously in that
position was smooth. Due to good customer acquisitions, it is highly probable that the Company will achieve annual
sales of about ¥600mn (including maintenance contracts) within a few years. In actuality, Radware-related started
off strongly with orders received of ¥217mn and ¥55 million in sales of maintenance service in FY3/21. In addition,
due to the fact that the previous primary distributor mainly handled network-related products, the Company (which
can distinguish the products from existing products in the security-related field) is expected to develop the businessscale even larger through cross-selling and up-selling.
The main reasons why sales declined in the Security Section was that there was a large-scale order worth around¥300mn in FY3/20 and also that from FY3/21, the recording of sales for an order from the National Police Agency(¥698mn) is being divided into monthly amounts (from December 2020 to November 2025). Ordering activities
during the period were actually strong for network security projects and cyberthreat intelligence services due tothe increases in cyberattacks and unauthorized accesses. Specifically, 1) interest is increasing in the market forsuch services, as security measures for industrial control systems have become an urgent matter, as evidenced
by the acquisitions of orders for Nozomi Networks from four domestic electric power companies and also several
major domestic companies in the manufacturing industry; 2) orders continue to be strong for KELA, a cyberthreat
intelligence service that collects and analyzes information on cyber-terrorism and other such threats, and for the
BitSight risk scoring service that makes it possible to visually monitor the exposure to cyber risks of supply chainsand corporate groups; and 3) orders are increasing for proposals to counter targeted cyberattacks (defense andsecurity against unauthorized network intrusions, a targeted attack countermeasure cloud service, onetime passwords, a network vulnerability diagnostic service, etc.)
The reason for the decline in sales in the Monitoring Section was that sales of maintenance services decreased
following the end of a manufacturer’s product support. Conversely, sales were recorded of a large-scale order for agovernment agency for momentum, which is a packet analysis product using in-house products and services. There
was also an additional order from a domestic financial institution for SevOne, a performance monitoring product,
while for CloudTriage, which is an operations monitoring cloud service developed by the Company, it is focusing onordering activities for the main existing customers.

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14 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

In the Solutions Services Section, the main product of Mieru-Tsuyaku, a multi-lingual video interpretation service,
suffered due to the significant decline in the number of overseas visitors to Japan because of the impact of COVID19. However, the Company succeeded in capturing demand from foreigners residing in Japan and from the deaf
community, while introductions of this services by local governments, financial institutions, and medical facilities
are also accelerating. Going forward, the Solutions Services Section will focus on initiatives that include diversifying
its revenue sources in part by drawing on experience it has gained from its interpretation services and applying itto provision of its translation services, integrating Zoom and other remote meeting services with the Company’s
extensive range of solutions, generating greater demand for its EzAvater RPA tool developed in-house by offering
packaged solutions, sales enhancement for TechSee’s DIY support looking toward the 5G era (enabling customers
to resolve problems on their own), and inbound marketing business for overseas tourists developed by IGLOO.
Trends in quarterly net sales by business section

Network Section quarterly sales
FY3/19FY3/20

Security Section quarterly sales
FY3/19FY3/21

FY3/20FY3/21

(¥mn)

(¥mn)
700

700

600

600

500

500

400

400

300

300

200

200

100

100
0

0
1Q

2Q

3Q

Monitoring Section quarterly sales
FY3/19FY3/20

1Q

4Q

2Q

3Q

4Q

Solutions Services Section quarterly sales

FY3/21

FY3/19FY3/20FY3/21

(¥mn)

(¥mn)
300

400
350

250

300
200

250
200

150

150

100

100
50

50
0

0
1Q

2Q

3Q

1Q

4Q

2Q

3Q

4Q

Source: Prepared by FISCO from the Company’s securities report, quarterly securities report, and financial results

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15 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

In FY3/21, the gross profit margin increased significantly by 4.0 percentages points (pp) YoY to 41.4%. The direct
reasons for this included the effects of keeping-down costs due to COVID-19, the increase in the ratio of profitableprojects, and the launches of in-house products and services that are highly profitable. However, it can also
be considered to be from the effects of the Company’s up-selling and cross-selling from its sales strategy, of“continuously proposing enhanced functionality that will increase added-value to customers,” which is leading to
improved productivity.
Conversely, the SG&A expenses ratio in FY3/21 declined 0.9pp YoY to 29.9%. This reflects the effects of the higher
sales and of keeping down costs due to COVID-19. However, the Company can also be highly evaluated for its
efforts to absorb the increase in personnel costs as upfront investment (the Company itself increased its full-time
employees by 8 people) and the costs to develop in-house products, as well as the costs for the M&A (of IGLOOO
and CRESEED). As a result, in FY3/21 the operating income margin improved greatly, up by 5.0pp YoY to 11.5%,
mainly due to the improved cost of sales ratio. Looking at how it trended during the period as well, it improved
from 7.4% in the 1Q to 13.8% in the 4Q. However, one point to note on looking at the Company’s business modelis that it includes sales of hardware that have a low profit margin, and at the current time the realistic value of theCompany’s operating income margin is around 7%, and the double-digit operating income margin can be said tobe highly evaluated as the result of its efforts for daily sales activities.

Trends in the profit margin, etc.
Gross profit margin（%）

SG&A expenses ratio（%）

Ordinary income margin (right)

50.0

14.0
11.5

40.0

41.4

10.0

30.0

29.9

6.0

20.0

2.0

10.0

-2.0

0.0

-6.0
FY3/17

FY3/18

FY3/19FY3/20FY3/21

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

2. Is maintaining a sound financial structure that can absorb cash outflows from dividend payments andM&A
With respect to the FY3/21 financial results, it is worth pointing out that the Company has organically developed asound financial structure without resorting to equity finance. In terms of the typical indicators of financial stability,
equity financing utilizing the Company’s treasury shares combined with a rebound in financial results underpinned
substantial gains in the equity ratio and current ratio. The equity ratio rose from 24.4% at the end of FY3/18 to 45.0%
at the end of FY3/19 and 53.9% at the end of FY3/20. Meanwhile, the current ratio reached 99.0% at the end of
FY3/18, 179.2% at the end of FY3/19, and 209.4% at the end of FY3/20, thereby surpassing the 200% thresholdthat indicates sufficient solvency.

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16 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

Continuing, at the end of FY3/21 the equity ratio had declined to 46.6% and the current ratio to 169.9% on theend of the previous fiscal period. But this included due to the increase in advances received (current liabilities)
following the order of a large-scale project from the National Police Agency, and it is not a particular cause forconcern. In fact, the D/E ratio (interest-bearing debt / shareholders’ equity) was 0.13 times (0.17 times at the endof the previous period) and net cash (cash and deposits – interest-bearing debt) was ¥2,070mn (¥1,508mn), soboth further improved, and the Company is maintaining a sound financial structure able to absorb cash outflows
due to dividend payments and M&A.
Moreover, the Company’s non-consolidated retained earnings, which normally serve as the source of its dividend
payments, increased to ¥502mn at the end of FY3/21 from ¥156mn at the end of FY3/20, which accordingly
suggests that the Company has strengthened its capacity to furnish dividends. The Company has already secured
approximately six years’ worth of dividend capital given that it needs about ¥82mn to cover its dividend of ¥5 pershare.
At the end of FY3/21, total assets were up ¥1,422mn on the end of the previous period to ¥5,625mn, while net
assets had increased ¥374mn to ¥2,643mn. Looking at the increase and decrease factors compared to the endof the previous period, the most noticeable items were that in assets, there were increases in cash and deposits of¥523mn and in goodwill (intangible non-current assets) of ¥189mn, and in liabilities, an increase in advances received(current liabilities) of ¥943mn. The increase in goodwill is due to IGLOOO and CRESEED being made subsidiaries,
and when considering both companies’ contributions to earnings, the financial structure is thought to be sound at
the current time. The increase in advances received was mainly due to a large-scale project for the National Police
Agency, and it will contribute to earnings over the next 5 years.
Return on equity (ROE) increased by 6.3 percentage points YoY to 17.9%, and return on assets (ROA) increased by
3.3 percentage points to 11.1%, indicating ongoing improvement with respect to profitability of assets.
Simplified balance sheet(¥mn)
End of
FY3/16End of
FY3/17

End of
FY3/18End of
FY3/19End of
FY3/20End of
FY3/21

YoY

2,019

2,063

2,288

2,355

3,404

4,515

1,111

1,007

1,098

972

1,064

1,895

2,418

523

Notes and accounts receivable - trade

524

493

863

742

871

965

94

Inventory assets

64

24

35

56

102

180

78

Non-current assets

435

375

834

839

798

1,109

311

Property, plant and equipment

108

93

131

148

147

208

61

Intangible non-current assets

87

63

381

353

339

526

186

Current assets
Cash and deposits

239

218

321

337

311

374

62

Total assets

2,455

2,439

3,123

3,194

4,203

5,625

1,422

Current liabilities

Investments and other assets

1,676

1,752

2,312

1,314

1,626

2,657

1,031

Accounts payable - trade

106

315

252

243

451

378

-72

Short-term borrowings

928

750

1,177

137

130

57

-72

78

49

48

439

307

324

16

-

-

-

386

256

290

33

67

35

9

11

7

6

-0

1,755

1,802

2,361

1,753

1,934

2,981

1,047

928

750

1,177

524

386

347

-38

699

637

762

1,441

2,269

2,643

374

Non-current liabilities
Long-term borrowings
Lease obligations
Total liabilities
Interest-bearing debt
Total net assets

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

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17 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

Trends in shareholders’ equity and the equity ratio(¥mn)

Shareholders’ equity (left)

3,000

Equity ratio (right)

（%）
60.0

53.9

2,500

46.6

45.0

48.0

2,000
36.0
1,500

26.1

24.4

2,623

2,266

1,000
1,441
500
637

762

FY3/17

FY3/18

24.0

12.0

0

0.0
FY3/19FY3/20FY3/21

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

Trends in the current ratio, cash and deposits, and retained earnings
Cash and deposits (left)
Current ratio (right)(¥mn)）

Retained earnings (left)
（%）

3,000

250

2,500

200

2,000

150

1,500

100

1,000

50

500

0

0
-500

-50

-1,000-100-1,500-150
FY3/17

FY3/18

FY3/19FY3/20FY3/21

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

Also, the greater soundness of the financial structure has led to an improvement in non-operating income/loss. In
the case of the Company, which handles imported goods as its mainstay products, the impact of foreign exchange
profit/loss on non-operating revenue cannot be completely eliminated. However, in FY3/20, interest income was 3.2
times the level in FY3/19, and interest expenses were down 63.1% YoY, as the effects of reducing interest-bearing
debt became apparent, which played a role in improving non-operating income/loss. In FY3/21, interest expensedecreased YoY and non-operating income/loss remained in positive territory partly as a result of the Company
having posted subsidy income.

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18 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Results trends

Trends in interest-bearing debt, interest expenses, and non -operating
income/loss(¥mn)

Interest-bearing debt (left)
Non-operating income/loss (right)

1,500Interest expenses (right)

(¥mn)
30
25

1,250

20
15

1,000

10
750

5
0

500

-5
-10

250

-15
0

-20

FY3/17

FY3/18

FY3/19FY3/20FY3/21

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

At the end of FY3/21, the balance of cash and cash equivalents was ¥2,128mn. Looking at each of the cash flow
conditions, net cash provided by operating activities was ¥1,131mn, mainly because net income before income
taxes was ¥543mn and advances received increased ¥943mn. Net cash used in investing activities was ¥256mn
overall, including due to expenditure of ¥223mn to acquire a subsidiary’s shares following a change in the scope of
consolidation. Net cash used in financing activities was ¥237mn, with the main factors being income from long-termborrowing of ¥140mn, but expenditure to repay long-term borrowing of ¥290mn and dividend payments of ¥81mn.
Simplified cash flow statement(¥mn)
FY3/16

FY3/17

FY3/18

FY3/19FY3/20FY3/21

Net cash provided by (used in) operating activities (a)-223

Net cash provided by (used in) investing activities (b)

-4

291

-55

374

484

1,131

0

-440

-55

-24

Net cash provided by (used in) financing activities

-256

-231

-219

391

-218

464

-237

Free cash flow (a) + (b)

-228

291

-495

318

459

874

Cash and cash equivalents at end of period

445

535

462

569

1,500

2,128

Note: Results are non-consolidated up to FY3/17 and consolidated from FY3/18 onwards.
Source: Prepared by FISCO from the Company’s securities report and financial results

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19 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english█ Outlook
Announced the new three-year medium-term management plan with
FY3/22 as its first fiscal year
Attention is focusing on the path shown toward achieving net salesof ¥10bn
1. The FY3/22 results forecasts are conservative
With regard to initial forecasts for the FY3/22 consolidated results, the Company plans for net sales to increase
10.6% YoY to ¥5.2bn, operating income to decrease 68.5% to ¥170mn, ordinary income to decrease 68.7% to¥170mn, and net income attributable to owners of parent to decline 70.3% to ¥130mn. Based on its policy for
returns to shareholders of “targeting a dividend payout ratio of at least 50%,” it plans to once again pay a period-end
dividend per share of ¥5.
The Company can be said to be forecasting declines in profits due to the effects of starting to apply “the new
accounting standard for recognizing revenue (below, “the new accounting standard”),” but it has stated that these areconservative values. In fact, an operating income margin of 3.3%, which has been incorporated into the announced
values, would seem extremely low compared to the value the Company is actually capable of (around 7%) evenon considering that it will be pushed down by the increase in amortization of goodwill (by around 0.4pp). So these
forecasts can be said to be very conservative.
Looking back, the Company’s initial forecasts for the FY3/21 results were also conservative. Looking at the ratesof achievement of the FY3/21 results compared to the initial forecasts, net sales were 112.5%, operating income
was 270.1%, ordinary income was 271.5%, and net income attributable to owners of parent was 312.6%, so eachgreatly exceeded their initial forecast. In addition to this positive performance, the Company seems to tend to be
somewhat conservative with its initial forecasts. So for the FY3/22 results as well, it is considered highly possiblethat the results will exceed the initial forecasts to some extent.
The FY3/22 results forecasts and the effects of adopting the new accounting standard

Source: The Company’s results briefing materials

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

20 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Outlook

Source: The Company’s results briefing materials

2. The new medium-term management plan shows the path to achieve net sales of ¥10bn
The Company stated that it will “implement measures for public relations and publicity activities aimed at improving
medium- to long-term and sustainable corporate value, while also aiming to maximize corporate value.” In May 2021
as one part of these efforts, it announced the new medium-term management plan.
For FY3/22, the plan’s first fiscal year, the new medium-term management plan incorporates “numerical targets
for organic growth,” “the basic strategy and priority measures to achieve the targets” and “the basic approach for
implementing the M&A and business alliance strategy.” More specifically, it shows the path toward achieving net
sales of ¥10bn.
First, for the “numerical targets for organic growth,” which are net sales of ¥7.4bn and operating income of ¥560mn
in the plan’s final fiscal year (FY3/24), the sense is that the Company established strong footholds in FY3/21, with
operating income of ¥540mn. However, the message included here is that the “targets are to achieve a net sales
growth rate of 20% and an operating income margin of 8%,” and taking as the starting point FY3/22, for which
the effects of the new accounting standard have been conservatively incorporated, the response should not be
considered to be excessive compared to the absolute level for the final fiscal year. On the point that the operating
income margin in FY3/24 will be 7.6%, it is assumed that this is a result of incorporating the effects of the increasein the amortization of goodwill due to CRESEED being made a subsidiary (around 0.4pp).
For “the basic strategy and priority measures to achieve the targets” the key messages can be read to be 1)
strengthening the recurring income-type business model) 2) dynamic expansion of the Group’s businesses, and 3)
global business development. Whatever the case, the key will be the alliance strategy, including M&A, so the factthat the current new medium-term management plan incorporates a “basic approach for implementing an M&A andbusiness alliance strategy” is considered to have an important meaning. In particular, based on the perceived imageof an investment scale of around ¥1bn to ¥2bn, we shall be focusing on the Company clearly indicating the scale ofthe investment budget per project (¥300mn to ¥500mn) and the scale of acquired annual sales (¥500mn to ¥1bn).

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

21 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

OutlookOn this point, the case of CRESEED being made a subsidiary in March 2021 appears rich in suggestions. CRESEED
was founded in 1990 from a company split from the information systems department of KANEDA Co, Ltd., a trading
company specializing in oil and chemical products. It seems its core business is an information systems operational
support and outsourcing business for the information systems departments and systems personnel of customers.
It provides IT services, such as work solutions and systems and network construction, centered on its group of
in-house concept products that realize flexibility equivalent to scratch development and ease of application equivalent
to package software.
By making CRESEED a subsidiary, the Company’s strategy is to aim to 1) expand business opportunities in themedium- to small-scale enterprise markets, in which it has had little experience up to the present time, and 2)
introduce an asset-type business model of an information systems operational support and outsourcing business.
This can be said to be consistent with the basic strategy and priority measures in the new medium-term management
plan. Also, in relation to the investment scale, including costs, of ¥302mn, as the FY3/22 forecasts are for net
sales and operating income of ¥700mn and ¥50mn respectively, and an operating income margin of 7.1%, it is anacquisition that obeys the Company’s own rules for M&A.
From the above points, based on the net sales target of ¥7.4bn through organic growth, the Company is aiming toaccumulate net sales on a scale of ¥2bn to ¥4bn through its M&A strategy. In other words, the new medium-term
management plan can be highly evaluated for ambitiously showing the path toward achieving net sales of ¥10bn,
and we shall be paying attention to it taking this direction.
2021 to 2023 Three-year medium-term management plan (numerical targets)

Source: The Company’s results briefing materials

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

22 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

Terilogy Co., Ltd.
3356 TSE JASDAQ Standard

28-Jul.-2021
https://www.terilogy.com/english

Outlook2021 to 2023 Three-year medium-term management plan (basic strategy and priority measures)

Source: The Company’s results briefing materials

2021 to 2023 Three-year medium-term management plan

Source: The Company’s results briefing materials

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

23 23

Disclaimer
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FISCO Ltd.
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Phone: 03-5774-2443 (IR Consulting Business Division)
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