Startia : Summary of Consolidated Financial Results for the First Quarter Ended June 2023

August 10, 2023

Summary of Consolidated Financial Results

for the First Quarter Ended June 2023 [Japan GAAP]

Note: Diluted profit per share for the first quarter of the fiscal year ended March 31, 2023 is not shown because there are no latent shares with a dilutive effect. Diluted profit per share for the first quarter of the fiscal year ending March 31, 2024 is not shown because there are no latent shares.

(2) Consolidated financial position

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

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

(1) Explanation of results of operations

During the first quarter of the fiscal year ending March 2024, recovery of consumption behavior was seen in the Japanese economy since social and economic activities were normalized after the government's reclassification of COVID-19's category to Class 5. However, the outlook for the economy was still unclear because of the monetary tightening in the United States and other developed countries, the prolonged Ukraine crisis, the rising cost of material procurement because of inflation, and other concerns.

In this business environment, the information technology industry, where the Startia Group operates, has attracted a wide range of interest from environmental improvement for the digital shift of business operations to the area of digital transformation (DX), resulting in growing demand for improvements in the office network infrastructure environment, including response to cybersecurity.

In the Digital Marketing business, the Company continued to provide "Cloud CIRCUS," a digital marketing tool, which helps customer companies to "increase and nurture their customers," as a subscription model (recurring billing type), working to increase the number of customer acquisitions and ARR (annual recurring revenue). We focused not only on direct sales, but also on developing customer referrals and partner sales to expand sales channels.

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.

Historically, profitability tended to decline in the first quarter due to an increase in costs and training for new employees, but our productivity has improved since the previous fiscal year and we realized stable and better profitability in the first quarter under review. Both sales and segment profit achieved year-on-year increases in both the Digital Marketing business and the IT Infrastructure business in this first quarter.

As a result, sales in the first quarter of the current fiscal year totaled 4,934,684 thousand yen (up 6.5% from a year before), operating profit of 634,979 thousand yen (up 229.4 % from a year before), ordinary profit of 649,525 thousand yen (up 155.4 % from a year before), and net profit attributable to shareholders of the parent of 436,686 thousand yen (up 166.9 % from a year before).

Business segment results were as follows.

(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 customers and turning them into actual customers, and increasing repeated customers and preventing cancellations of contracts. 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

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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.

During the first quarter, the MA tool "BowNow" won the High performer award in the MA and ABM categories of the "ITreview Grid Award 2023 Spring." It was recognized as a product with excellent satisfaction and recognition in the small and medium-size enterprise (SME) category. The setup work was dramatically reduced using our chatbot "IZANAI" due to the automatic generation of conversation flows through its ChatGPT linkage. Moreover, the addition of a new "Text to Website" feature to the "LP Builder Powered by Slideflow" allows users to create websites simply by inputting text using the ChatGPT and is expected to lower the hurdles to website creation for SMEs. These led to well-performing sales of the subscription model business. Furthermore, one-time revenues also increased due to increased outsourcing orders for Cloud CIRCUS-related contracted development and growth in web production.

Since the first quarter of the current fiscal year, the Digital Marketing business has shifted from the investment phase to the profitable phase, and achieved profitability alone. We will continue to invest in development and deploy advertising spending as necessary to generate segment profit further.

Consequently, segment sales in the first quarter of the fiscal year ending March 2024 totaled 841,724 thousand yen (up 21.4% from a year before) , and the segment profit (operating profit) of 32,481 thousand yen compared with the segment loss (operating loss) of 95,869 thousand yen in the same period in the previous year.

(IT Infrastructure)

In the IT Infrastructure business, the Company successfully generated stable segment profit from the first quarter by establishing a system that an improvement in the sales turnover ratio contributes to continuous enhancement of productivity. This is enabled by systematically developing a flow from business negotiations and proposals to order receipt, product delivery, and after-sales service, using our information assets and inter-organizational collaboration and approaches that make full use of internal systems in the in-house departments of marketing, contact centers, sales, technologies and CS (Customer Success). In the first quarter, the Company also continued to meet the needs for information security measures of SMEs, following the previous fiscal year, and solution projects such as the installation of network equipment centered on UTM (Unified Threat Management), an information security product, contributed to the improvement of profitability. In the MFP business, sales and profit increased significantly due to particularly strong partner sales. In the electric power retailing business, we had expected an increase in electricity sales due to fuel cost adjustments according to increased demand in summer passed on the price, but the size of the price pass-through was smaller than expected due to lower power procurement costs at power generation companies and others as fuel prices, such as liquefied natural gas (LNG), stabilized, resulting in lower electricity power sales than expected. However, gross profit increased year on year.

Consequently, segment sales totaled 4,092,937 thousand yen (up 3.8% from a year

before) and the segment profit (operating profit) of 554,546 thousand yen (up 99.8% from a year before).

(CVC)

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In the CVC business, we are engaged in the corporate venture capital business. This business is promoted by the Corporate Venture Capital Business Promotion Office (CVC Office), which specializes in investing in venture companies for the purpose of earning capital gains. The CVC Office invests its capital in IT-related startup companies that try to create new businesses with brand-new ideas and innovative technologies, and supports such companies, with the aim of exiting from the investments (by way of listing of shares or acquisition by third parties).

During the first quarter, the CVC Office invested in K&P Partners No. 4 Investment Limited Partnership.

Consequently, the segment reported no sales and the segment loss (operating loss) of 249 thousand yen compared with the segment loss (operating loss) of 249 thousand yen in the same period in the previous year.

1. Explanation of financial condition
   Total assets were 11,316,182 thousand yen at the end of the first quarter, 1,596,697 thousand yen less than at the end of the previous fiscal year. This was attributable primarily to the decreases of 611,467 thousand yen in notes and accounts receivable - trade and contract assets, 434,863 thousand yen in cash and deposits, 383,136 thousand yen in other current assets, and 115,896 thousand yen in deferred tax assets, despite the increase of 19,192 thousand yen in operational investment securities.
   Liabilities were 5,522,908 thousand yen at the end of the first quarter, 1,698,018 thousand yen less than at the end of the previous fiscal year. This was attributable primarily to the decreases of 690,928 thousand yen in accounts payable-trade, 561,538 thousand yen in income taxes payable, 184,988 thousand yen in accounts payable-other, 175,927 thousand yen in long-term borrowings, and 169,733 thousand yen in provision for bonuses, despite the increase of 100,00 thousand yen in short-term borrowings.
   Net assets were 5,793,273 thousand yen at the end of the first quarter, 101,320 thousand yen more than at the end of the previous fiscal year. This was attributable primarily to net profit attributable to shareholders of the parent of 436,686 thousand yen and the increase of 12,478 thousand yen in valuation difference on available-for-sale securities, albeit dividend payment of 347,844 thousand yen.

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