Startia : Summary of Consolidated Financial Results for the First Half Ended September 2021

November 12, 2021

Summary of Consolidated Financial Results

for the First Half Ended September 2021 [Japan GAAP]

Note: Revisions to the most recently announced dividend forecast: None

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3. Consolidated earnings forecasts for the fiscal year ending March 31, 2022 (April 1, 2021 - March 31, 2022)

(Percentage figures represent year-on-year changes)

Note: Revisions to the most recently announced sales and earnings forecasts: None

• Notes
• 1. Changes in significant subsidiaries during the first half ended September 30, 2021 (Changes in specific subsidiaries accompanied by changes in the scope of consolidation): None

1. Use of accounting methods that are specific to the preparation of the quarterly consolidated financial statements: None
2. Changes in accounting policies, changes in accounting estimates, and restatements
3. 1. Changes in accounting policies accompanying revisions in accounting standards and other regulations: Yes
   2. Changes other than in (a): None
   3. Changes in accounting estimates: None
   4. Restatements: None
4. Number of issued shares (common shares)
5. 1. Total number of issued shares at the end of the period (including treasury shares)

(Note) The number of treasury shares at the end of the period includes the Company's shares held by the trust account regarding the stock benefit trust (BBT・J-ESOP) and those held by the trust regarding the stock benefit trust (employee stockholding association purchase-type) (328,800 shares for the first half ended September 2021 and 355,500 shares for the fiscal year ended March 2021). In addition, the number of the Company's shares held by the trust account regarding the stock benefit trust (BBT・J-ESOP) and those held by the trust account regarding the stock benefit trust (employee stockholding association purchase-type) was included in the number of treasury shares, which was to be deducted from the calculation of the average number of shares during the period (345,383 shares for the first half ended September 2021 and 395,407 shares for the first half ended September 2020).

• This quarterly earnings report is not subject to the audit by certified public accountants or auditing firms
• Explanation of the proper use of these earnings forecasts and other matters

(Note on forward-looking statements)

The forward-looking statements shown in this report are based on information currently available and certain assumptions that the Company regards as reasonable. The Company cautions that these statements do not guarantee future achievements. Actual results of operations may differ significantly from forward-looking statements for a number of reasons. Please refer to "1. Qualitative information regarding earnings for the first half of the fiscal year (3) Explanation of consolidated earnings forecasts and other forward-looking statements" on page 9 for the suppositions that form the assumptions for earnings forecasts and cautions concerning the use thereof.

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1. Qualitative information regarding earnings for the first half of the fiscal year

(1) Explanation of results of operations

In the first half of the fiscal year ending March 2022, the Japanese economy remained in a very severe environment as personal consumption and corporate earnings kept worsening due to the continuing standstill and contraction of economic activities since the Declaration of a State of Emergency and semi-emergency measures were applied to several regions amid the resurgence of the spread of COVID-19. On the other hand, due to the progress of COVID-19 vaccinations, expectations of an economic recovery have increased on the resumption of social and economic activities.

In this business environment, there is the urgent need for management reforms using IT in the industries to which the Startia Group belongs, due to the introduction of teleworking and the progress of environmental arrangements for a digital shift to cope with COVID-19. While demand for IT-related investments increased in areas like digital transformation (DX), a cautious stance on such investments continues to be seen amid the unclear environment.

The Startia Group is promoting its businesses to achieve the targets of the "Medium-Term Management Plan, 'NEXT'S 2025" announced on May 15, 2020, a five-yearmedium-term management plan from the fiscal year ended March 2021 to the fiscal year ending March 2025.

Particularly, in the Digital Marketing business, the Group has launched initiatives to make a big turn in the fiscal year ended March 2021 to a SaaS type business model as a subscription model. By lowering the hurdle for customers who could not pay for our conventional flow type services with high unit prices, we have been striving to increase the number of customers and ARR, or annual recurring revenue.

In the IT Infrastructure business, the Group has been establishing solid relationships with the customer base of small and medium-size enterprises, or SMEs, and supported them to improve their productivity consistently by proposing and providing solutions to those customers. In a bid to lead their operations in a better direction, the Group uses IT technologies that cover core and indispensable facilities at offices and support for office work.

In the first half of the fiscal year under review, while we were affected by the self-restraint on economic activities due to the effects of COVID-19, customers began some business activities to cope with the situation amid the pandemic and the era after it. In the Digital Marketing business, orders for the SaaS tool group, Cloud CIRCUS, remained firm, accumulating monthly recurring revenue, or MRR. In the IT Infrastructure business, while business activities of some customers stood still or shrank due to the effects of COVID-19, sales and segment profit increased substantially from the same period of the previous fiscal year. In addition, we separated the cloud storage business. In a bid to organize it into a joint venture company with Chatwork Co., Ltd. ("Chatwork"), we established Chatwork Storage Technologies Co., Ltd. ("CST") and transferred part of CST shares to Chatwork. On July 1, CST became Startia's affiliate accounted for by the equity method. By establishing the JV company, we will cooperate with Chatwork Co.'s business chat service, Chatwork, and find more customers that each of the integrated services could not reach separately. Moreover, by implementing collaboration through the two groups' knowledge on marketing and sales ability, the Startia Group aims to broaden values of products and services it provides to customers, such as "RoboTANGO," an RPA (Robotic Process Automation) tool for small and medium-sized enterprises, contribute to solving their problems, and become an infrastructure that supports their working environment.

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In the first half of the fiscal year, ordinary income increased substantially on equity gains of affiliated companies, since our equity-method affiliates performed well, as well as the reporting of distribution from an investment partnership as our investment target. In addition, we reported 416 million yen in gain on the sale of an affiliate's shares in July in line with the establishment of the aforementioned JV company and 148 million yen in gain on the sale of part of investment securities in August, resulting in a sharp increase in extraordinary profit.

As a result, sales in the first half of the fiscal year under review totaled 6,991,223 thousand yen (up 17.0% from a year before), operating profit of 127,538 thousand yen (operating profit of 9,919 thousand yen a year before), ordinary profit of 271,549 thousand yen (up 749.0% from a year before), and net profit attributable to shareholders of the parent of 394,482 thousand yen (net loss attributable to shareholders of the parent of 15,462 thousand yen a year before).

Business segment results were as follows.

In the current fiscal year under review, we reclassified the Overseas segment into the Others segment as we transferred all shares in our Chinese subsidiary, Startia Shanghai Inc., to other parties. In the year-on-year comparison below, we used the relevant figures in the same quarter of the previous year under the new segmentation.

(Digital Marketing)

In the Digital Marketing business, the Group provides "Cloud CIRCUS*," a group of SaaS tools that help solve issues in five areas to increase the number of customers: transmission of information, attracting customers, enhancing experienced value of customers, fostering potential customers and turning them into actual customers, and preventing cancellations of contracts and increasing repeated customers. Cloud Circus is an easy-to-use tool that everyone can start and use quickly even if he/she engages in digital marketing for the first time ever. We also provide freemium plans for the service. On top of Cloud Circus, we support marketing consulting and operations by customers based on our expertise for the management of advertising and establishment of websites. By providing comprehensive support for the evolution of marketing power, together with the tools, we respond to the potential need for shifting to digitalization and provide multiple services to a single customer.

In the first half of the fiscal year, Startia Lab, Inc., which engaged in the Digital Marketing business, merged with its wholly-owned subsidiary, Mtame, Inc., on July 1, 2021, establishing a structure for the effective use of management resources and the strengthening of capabilities to deal with the changing market environment and diversifying customer needs. The company changed its name to Cloud CIRCUS, Inc., the same name as our SaaS tool group Cloud CIRCUS, to seek broader perception of the service brand. In September, the company held a free-of-charge online conference, "Marketing CIRCUS DAY Autumn 2021," with a main theme of Digital marketing available for Japanese companies to generate achievements. By running a campaign to commemorate the change in company name, Cloud CIRCUS managed to receive a lot of inquiries and enjoy a large number of downloads of the free version, leading to an increase in cross selling of Cloud CIRCUS or new order placements for the tools. As a result, sales of subscription models performed well. Advertising expenses in the second quarter decreased considerably as we delayed the launch of TV commercials from September to October (no change in our full-year plan for advertising expenses) and human resource-related expenses, such as personnel and recruiting expenses, shrank as our mid-career recruitment did not progress as planned.

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* Cloud CIRCUS

As a result, segment sales in the first half of the fiscal year under review totaled 1,236,868 thousand yen (up 9.3% from a year before) and the segment loss (operating loss) of 154,937 thousand yen (the segment profit (operating profit) of 40,828 thousand yen a year before).

(IT Infrastructure)

In the IT Infrastructure segment, the Group is in charge of the sale, construction or maintenance of information and communication equipment such as MFPs (multi-function printers), UTM (Unified Threat Management) equipment, network equipment and business phones. It also provides consistent SI services from installing servers to system operation and maintenance as well as maintenance of equipment. It also provides customers with the consulting service, helping them to choose and introduce optimum tools fitted for their issues from several RPA (Robotic Process Automation) products, such as "Robo-Pat" and "RoboTANGO," and assist them in using the introduced tools until they are accustomed to them. Moreover, while telework has been promoted due to the workstyle reforms and the spread of COVID-19, we provide an electronic signature tool that conducts all the process from the signatures and seals of contracting parties, to delivery, storage, and others on a cloud basis.

Since IT equipment and services have risen in capabilities and fallen in prices in recent years, SMEs, the targets of the IT Infrastructure segment, are in a management environment ready for increasing their sales and productivity by using such equipment and services.

However, a majority of SMEs face a challenge of failing to introduce and use IT equipment and services sufficiently as they cannot afford to establish IT departments or appoint IT-dedicated employees due to lack of human resources. In a bid to cope with such challenge, we have a mission of assisting the sound growth and survival of customers. We propose, sell and provide support for optimal IT equipment and services and related office environments from the standpoint of customers.

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