SB Technology : Overview of Earnings Results Briefing for FY2022 Q3（601K）

SB Technology Corp.

※It is translated by AI.

SB Technology Corp.

Overview of Earnings Results Briefing for FY2022 3Q

This is a transcript of the SB Technology Corp. FY2022 3Q Results Briefing held on January 25, 2023.

Speaker: Mr. Shinichi Ata, President & CEO, SB Technology Corp.

SB Technology, 3Q sales record highs. Net sales revised downward, but profit margin improved and full-year profit forecast unchanged

Results Summary

Summary

｜ FY2022 Q3

Financial Results

Orders

Received

Full-year Forecast

Public Sector and Enterprise drive revenue growth Operating income declined due to the inability to cover the increase in fixed costs resulting from the strengthening of personnel, etc.

Orders received increased in Enterprise and Public Sector, record high in Q3

Record-high order backlog at the end of December

Continue withdrawal from low -margin projects, etc., leaving operating income unchanged despite lower sales

Full-year forecast net sales JPY 67 billion, Operating income JPY 5.4 billion Improving margins

3

Shinichi Ata: Hello everyone, I am Shinichi Ata from SB Technology. Thank you very much for participating in our financial briefing while you are very busy today.

Summary of performance. Public Sector and Enterprise was the driving force behind the increase in sales, but profits declined due to the inability to cover the increase in fixed costs such as the strengthening of personnel. Orders received are increasing in the Enterprise and Public Sector, which is a record high for the third quarter. The order backlog at the end of December also reached a record high.

As a full-year outlook, we are currently promoting a shift from low-margin projects to high-value- added areas. Although net sales will decline, operating income remains unchanged. We have revised our full-year forecast for net sales from ¥70 billion to ¥67 billion, and we intend to keep our operating income unchanged at ¥5.4 billion for the fourth quarter.

	SB Technology Corp.
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Consolidated P/L（Apr－Dec）
Consolidated P/L（Apr－Dec）	｜ FY2022 Q3

• Public Sector and Enterprise projects increased, offsetting lower Telecommunication revenues
• Despite an improvement in the gross profit margin, operating income decreased due to an increase in SG&A expenses stemming from thestrengthening of personnel and other factors

[Millions of yen] (Profit margin )	FY22Q3	FY21Q3	Change		Change ％
	Net sales		48,231	47,626		605		1.3
	RecordHigh
			＋			＋	%
		3,541	3,660
	Operating income		▲	118	▲	%
		(7.3%)	(7.7%)			3.2
	Ordinary income		3,489	3,622	▲			▲	%
					133		3.7
	(7.2%)	(7.6%)
	Profit attributable to		２,108	2,187			79		3.6
	owners of parent Net		(4.4%)	(4.6%)	▲		▲	%
	profit
	EBITDA*						34		0.7
		4,778	4,813
				▲		▲	%
*EBITDA ＝Operating income ＋Amortization of goodwill ＋Depreciation						4

Net sales increased by 1.3% year on year to ¥48.231 billion, and operating income decreased by approximately ¥118 million to ¥3.541 billion, a decrease of 3.2% year on year.

Net Sales and Gross Profit by Market

Net Sales and Gross Profit by Market

｜ FY2022 Q3

Net sales

47.6 48.2

3.0 2.9

6.6 8.7

Gross profit

〔Billions of yen 〕 （Profit margin ）

10.5

9.9 (21.9%)

(20.9%)

Consumer： Decrease in both sales and profits

• The impact of the change in the contract with NortonLifeLockCo., Ltd. is delayed from the initial forecast

Public Sector： Increase in both sales and profits

•	Growth in sales through projects for the Ministry of
	Agriculture, Forestry and Fisheries and the operation of Local
	Government Information SC*
•	Securing increased profits despite the cost of responding to
	the August municipal information-related SC disruption and

21.0 22.0

1.9

0.6

1.8

0.7

activity costs for horizontal deployment to central ministries

and agencies

Enterprise： Increase in both sales and profits

•	Steady growth in Managed Security Service
•	Strong growth in cloud construction for the manufacturing

16.8 14.5

5.1 5.6

2.3 2.4

industry

Telecommunication： Decrease in sales, and Increase in profits

• Profit margin improvement due to improved efficiency, despite a decrease in sales due to a shift to high-value- added areas by narrowing down vendor management projects

FY21Q3

FY22Q3

FY21Q3

FY22Q3

※SC：Abbreviation for security cloud

5

Net sales and gross profit by market. For Telecommunication, Sales are decreased, but the profits are increased. From among the vendor management projects that drove sales for the past three years, we have selected those that will be discontinued at the timing of April, July, and October, and are shifting

SB Technology Corp.

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to high-value-added areas. As a result, net sales in fiscal 2022 were 14.5 billion yen, down 2.3 billion yen from 16.8 billion yen in fiscal 2021, but gross profit has grown from 2.31 billion yen to 2.4 billion yen.

This is followed by the Enterprise area. Although there are still licensing trading in the long-lasting portion of Microsoft's solutions, we have finished licensing trading from the first quarter to the third quarter for those that cannot be advanced to the next stage. Net sales increased from ¥21 billion in fiscal 2021 to ¥22 billion in fiscal 2022, and gross profit increased from ¥5.1 billion to ¥5.62 billion.

Net sales in the Public Sector area increased by 2.1 billion to 8.7 billion in fiscal 2022 from 6.6 billion in fiscal 2021. Gross profit increased from ¥620 million to ¥720 million. However, the increase in profit was smaller due to the costs incurred in August for dealing with failures in the municipal information security cloud and for activities aimed at the horizontal development of central government agencies.

The Consumer area is a business with NortonLifeRock Co., Ltd. and a subsidiary Fontworks. Net sales decreased from ¥3 billion in fiscal 2021 to ¥2.9 billion in fiscal 2022, and gross profit also decreased by ¥100 million.

Factors Behind Changes in Operating Income

営Factors業利益 Behind Changes in Operating Income

｜ FY2022 Q3

• Gross profit margin improved due to improved efficiency of Telecommunication, growth in security services, and lower loss provision
• Operating income decreased by JPY 120 million due to an increase in SG&A expenses accompanying the

• increase in the number of employees.

4

4

3

3

• 3.66
• (7.7%)

1

1

0

FY21Q3

〔 Billions of yen 〕 （Profit margin）

0.13		0.50		0.75
	↑Improving
↑sales growth		↓ Increases in
	profitability
				SG&A expenses

Gross Profit Margin +1.0pts	Personal expenses
Telecommunication +2.9pts
/Recruitment cost, etc.
Enterprise +1.3pts
YoY＋52 employees
(Decrease in loss provision
▲ JPY 0.33 billion)	3.54
	(7.3%)
▲0.12（▲3.2%）
	FY22Q3	6

Operating income increased by ¥130 million due to an increase in sales, and gross profit margin increased by ¥500 million due to an improvement in profitability, and decreased by ¥750 million due to an increase in SG&A expenses. As a result, operating income decreased by ¥120 million year on

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year to ¥3.54 billion.

[Non-Consolidated] Orders Received/Order Backlog （ Except Consumer business）

[Non単体-Consolidated]受注残高 Orders Received/Order Backlog （ Except Consumer business ） ｜ FY2022 Q3

Orders received

■ Public Sector ■ Enterprise ■ Telecommunication

＋6%	11.6
＋18% 11.0

		0.8
9.3	0.4

Order Backlog

＋8%

23.6

＋32%

17.9

11.3

Single order balance

(YoY basis)

25.6

JPY2.0billions UP

12.1	Q3/ Main orders
• Received orders for cloud

0.2

3.9

4.4 5.8

6.5

6.6 6.9

development for construction

industry

• Steady accumulation of orders for

8.9	Managed Security Service
Reduction in vendor management
•

6.0

5.04.8

FY20Q3 FY21Q3 FY22Q3 〔 Billions of yen 〕

projects for Telecommunication

4.7	5.3	4.5	• Approximately 54% of the order
backlog is expected to generate
FY20Q3	FY21Q3	FY22Q3	sales this Quarter
7

The amount of orders received in the third quarter was 11.6 billion yen, and the order backlog at the end of the third quarter was 25.6 billion yen. The order backlog in the Telecommunication area was

4.5 billion yen, the lowest in the past three years. The order backlog in the Enterprise Area is ¥8.9 billion, an increase of ¥2 billion year on year.

The order backlog in the Public Sector area increased by 800 million yen from 11.3 billion yen in the same period of the previous year to 12.1 billion yen. Of the five-year contracts, sales for the period up to the third quarter have already been achieved, so the order backlog for the third quarter of the fiscal year ending March 31, 2023 was ¥25.6 billion after adding ¥800 million for other orders. Of this amount, about 54% is scheduled to be sold in the fourth quarter.

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Full-year Earnings Forecast

Full通2020期-業year年績3月見期Earnings通業し績見通し Forecast

※1/10 報告ベース (確度ALL）

SB Technology Corp.

• FY2022 Q3

Revised downward only for sales

• The shift from low-margin projects to high-value-added areas is being promoted, and sales are expected to fall short of the initial forecast
• Profits remained unchanged due to improved profitability and a decrease in the impact of the change in the contract withNortonLifeLock Co.

			66.1	＋1.3% 67.0ForecastInitial	5.40			5.38
							70.0		5.13
							5.15	(8.1%)			(8.0%)
			18.5			(7.8%)	＋4.8%			(7.8%) ＋4.8%					3.4
					＋1.3%			1.49				1.51				3.6
														(5.5%)
								(8.1%)	▲3.2%									(5.1%)
			16.3	16.5						▲3.7%				1.44	▲6.4%
			1.45	1.27		1.43		1.26
							(8.9%)	(7.7%)								▲3.6%
			16.3	16.1										0.87	0.76
						1.18
		Q4		1.29						1.15
					1.31
		Q3						(7.9%)		(7.3%)							0.79		0.69
		14.9	15.5
		Q2	0.91	1.08		0.87		1.07			0.64
				0.51
		Q1					(6.1%)	(6.9%)
			FY21		FY22		FY21		FY22	FY21		FY22		FY21		FY22
〔Billions of yen〕	Net sales	Operating income	Ordinary income		Net profit	8
												（Profit attributable to owners of parent
																）

Full-year earnings forecast. We have revised our sales forecast downward from ¥66.1 billion in fiscal 2021 to ¥70 billion in fiscal 2022, to ¥67 billion this time. Operating income remains unchanged from the initial forecast at ¥5.4 billion as the effects of improved profitability and contract modifications in EC domain have been reduced.

4th Medium-Term Management Plan

4th Medium-Term Management Plan	｜ FY2022 Q3
	FY24	1.	Operating income JPY 8 billion
	Management	2.	Operating Income 9% range
	Indicators	3. Cloud Security & Services Net sales over JPY 50 billion

	Consumer				9.0%
	7.8%	7.7%
	Public Sector		8.0 Billion yen
	Enterprise	5.15	5.4
	Telecommunication
FY21	FY24	FY21	FY22	FY23	FY24

By the growth in the Enterprise and Public Sector, Aim to achieveoperating income of 8 billion and an

operating income of 9% range

10

In fiscal 2024, the final year of the Fourth Medium-Term Management Plan, we plan to improve our