Square Enix : Outline of Results Briefing held on August 4, 2022

Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on Aug 4, 2022

We would now like to begin the Financial Results Briefing session of SQUARE ENIX HOLDINGS (the "Company") for the first quarter of the fiscal year ending March 31, 2023 ("Q1 FY2023/3").

Today's presenters are:

Yosuke Matsuda, President and Representative Director, and Atsushi Matsuda, Chief Accounting Officer.

First, Mr. Matsuda, Chief Accounting Officer, will give an overview of the Company's financial results for Q1 FY2023/3, and then our president Mr. Matsuda will discuss the progress made by each of the Company's business segments.

I am Atsushi Matsuda, the Chief Accounting Officer. I will be providing an overview of our Q1 FY2023/3 results.

In Q1 FY2023/3, the Company booked net sales of ¥74.8 billion (down ¥13.8 billion YoY), operating income of ¥14.4 billion (down ¥2.9 billion), ordinary income of ¥26.2 billion (up ¥8.6 billion), and profit attributable to owners of parent of ¥18.3 billion (up ¥5.7 billion).

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The plans, forecasts, strategies and ideas described in this material are descriptions of forecasts of future results. These descriptions rely on information available as of the date of production of this material and are based on assumptions and judgment made by the Company's management. Readers are advised not to rely solely on these forecasts. Readers should also not assume that these forecasts are accurate or valid information, even after the date of public release. There are many factors that may cause actual results to vary considerably from the forecasts, and in some cases actual results may be inferior to forecasts.

The information on the future forecasts described in this material is current as of Aug 4, 2022. The company is not obliged to update or correct forecasts concerning the Company's future results, including forecasts or outlook, if new information becomes available and/or events occur after Aug 4, 2022.

Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on Aug 4, 2022

I will next break down our results by segment.

The Digital Entertainment segment posted net sales of ¥53.5 billion (down ¥16.3 billion YoY) and operating income of Y14.4 billion (down ¥2.9 billion).

Net sales declined YoY in the HD Games sub‐segment, where new titles generated fewer earnings than those of a year earlier, when the sub‐segment released "OUTRIDERS" and "NieR Replicant ver.1.22474487139..."

Net sales rose YoY in the MMO sub‐segment thanks to sharp growth in monthly paying subscriber numbers for "FINAL FANTASY XIV."

While "ECHOES of MANA" got off to a solid start following its April launch, net sales in the Games in the Smart Devices/PC Browser sub‐segment declined YoY, in part because of weak performances from existing titles.

The Amusement segment booked net sales of ¥11.9 billion (up ¥2.5 billion YoY) and operating income of ¥1.1 billion (up ¥800 million). Net sales and operating income rose YoY due to significant growth in same‐store sales.

The Publication segment posted net sales of ¥6.2 billion (down ¥1 billion) and operating income of ¥2.4 billion (down ¥800 million). The YoY decreases in net sales and operating income are due o to declines in both digital and print sales.

The Merchandising segment booked net sales of ¥3.6 billion (up ¥900 million YoY) and operating income of ¥800 million (down ¥100 million). Sales of new merchandise based on key IP were brisk, but the sales mix changed, resulting in higher net sales but lower operating income than in the previous year.

That concludes my overview of our Q1 FY2023/3 financial results.

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The plans, forecasts, strategies and ideas described in this material are descriptions of forecasts of future results. These descriptions rely on information available as of the date of production of this material and are based on assumptions and judgment made by the Company's management. Readers are advised not to rely solely on these forecasts. Readers should also not assume that these forecasts are accurate or valid information, even after the date of public release. There are many factors that may cause actual results to vary considerably from the forecasts, and in some cases actual results may be inferior to forecasts.

The information on the future forecasts described in this material is current as of Aug 4, 2022. The company is not obliged to update or correct forecasts concerning the Company's future results, including forecasts or outlook, if new information becomes available and/or events occur after Aug 4, 2022.

Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on Aug 4, 2022

I am Yosuke Matsuda. I will be providing additional details on how we did in Q1 FY2023/3.

In Q1 FY2023/3, net sales and operating income declined YoY in the HD Games sub‐segment due to new titles generating fewer earnings than those of the previous year, but the sub‐segment's progress was in line with our expectations. We plan to roll out a succession of new titles in Q2 and beyond, so we believe that sales trends going forward will be key.

We have left our earnings forecasts for the fiscal year ending March 31, 2023 undetermined because we are currently assessing the earnings impact of the transaction described in our May 2, 2022 release entitled "Execution of Share Transfer Agreement with Change to Subsidiaries." This makes it difficult to arrive at reasonable calculations at present, so we will disclose our forecasts as soon as we are able to calculate them.

As previously noted, consolidated net sales and operating income declined YoY in Q1 FY2023/3, but net income rose because we booked foreign exchange gains.

This is a breakdown of the Digital Entertainment segment's performance.

Net sales and operating income declined YoY in the HD Games sub‐segment due to new titles generating fewer earnings than those of the previous year.

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The plans, forecasts, strategies and ideas described in this material are descriptions of forecasts of future results. These descriptions rely on information available as of the date of production of this material and are based on assumptions and judgment made by the Company's management. Readers are advised not to rely solely on these forecasts. Readers should also not assume that these forecasts are accurate or valid information, even after the date of public release. There are many factors that may cause actual results to vary considerably from the forecasts, and in some cases actual results may be inferior to forecasts.

The information on the future forecasts described in this material is current as of Aug 4, 2022. The company is not obliged to update or correct forecasts concerning the Company's future results, including forecasts or outlook, if new information becomes available and/or events occur after Aug 4, 2022.

Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on Aug 4, 2022

This is our HD game pipeline. We are planning to release multiple new titles in 2Q and beyond.

Both "FINAL FANTASY XIV" and "DRAGON QUEST X Online" are delivering solid performances in the MMO sub‐segment. The number of paying subscribers for "FINAL FNATASY XIV" peaked with the release of the most recent expansion pack and has subsequently settled down, but the count is rising with each passing year, and we are hoping that we will be able to further activate our user base through a variety of operational initiatives going forward.

This is a list of the main titles in the Games for Smart Devices/PC Browser sub‐segment.

The new title "ECHOES OF MANA," which we launched in April, got off to a solid start. We are looking forward to earnings contributions from multiple new titles slated for release in Q2 and beyond, including from "FULLMETAL ALCHEMIST MOBILE," which we launched on August 4.

This shows the split between digital and physical game sales in the Digital Entertainment segment.

With digital downloads likely to remain the primary source of sales, we see making our content available on PCs as important, given that they are accounting for an increasing share of the market.

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The plans, forecasts, strategies and ideas described in this material are descriptions of forecasts of future results. These descriptions rely on information available as of the date of production of this material and are based on assumptions and judgment made by the Company's management. Readers are advised not to rely solely on these forecasts. Readers should also not assume that these forecasts are accurate or valid information, even after the date of public release. There are many factors that may cause actual results to vary considerably from the forecasts, and in some cases actual results may be inferior to forecasts.

The information on the future forecasts described in this material is current as of Aug 4, 2022. The company is not obliged to update or correct forecasts concerning the Company's future results, including forecasts or outlook, if new information becomes available and/or events occur after Aug 4, 2022.

Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on Aug 4, 2022

This slide shows units sold by region.

Units sold were down sharply YoY primarily because of weaker sales of new titles than in the previous year. Another reason for the decline is that we separated the profits and losses of businesses associated with IP to be divested from those arising from ordinary business activities by posting them under non‐ operating income as of Q1. As such, we excluded the relevant titles from our count of units sold starting in Q1.

Our content production account stood at ¥111.2 billion as of end‐Q1. This is indicative of the richness of our upcoming pipeline, and we hope that you will look forward to the contributions it will make to our earnings.

Net sales and operating income rose YoY in the Amusement segment thanks to the absence of restrictions associated with the COVID‐19 pandemic in Q1, resulting in a sharp increase in same‐store sales compared to the previous year. We cannot deny that uncertainty surrounds the outlook for the segment given that COVID‐19 cases are on the rise again of late, but we hope that the segment sees a continued recovery.

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The plans, forecasts, strategies and ideas described in this material are descriptions of forecasts of future results. These descriptions rely on information available as of the date of production of this material and are based on assumptions and judgment made by the Company's management. Readers are advised not to rely solely on these forecasts. Readers should also not assume that these forecasts are accurate or valid information, even after the date of public release. There are many factors that may cause actual results to vary considerably from the forecasts, and in some cases actual results may be inferior to forecasts.

The information on the future forecasts described in this material is current as of Aug 4, 2022. The company is not obliged to update or correct forecasts concerning the Company's future results, including forecasts or outlook, if new information becomes available and/or events occur after Aug 4, 2022.