Vario Secure : Non-consolidated Financial Results for the Three Months Ended May 31, 2022

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the Japanese original shall prevail.

Non-consolidated Financial Results

for the Three Months Ended May 31, 2022

[IFRS]

July 11, 2022

Company name: Vario Secure Inc.

Stock exchange listing: Tokyo Stock Exchange

Code number: 4494

URL: https://www.variosecure.net/

Representative: Yoshihiko Inami, CEO

Contact: Hideko Isoe, Director, General Manager of Administration Headquarters

Phone: [phone]

Scheduled date of filing interim securities report: July 12, 2022

Scheduled date of commencing dividend payments: ―

Availability of supplementary briefing material on interim financial results: Available

Schedule of interim financial results briefing session: Not scheduled

(Amounts of less than one million yen are rounded down.)

1. Non-consolidated Financial Results for the Three Months Ended May 31, 2022 (March 1, 2022 to May 31, 2022)

(1) Non-consolidated Operating Results	(% indicates changes from the previous corresponding period.)
												Total
	Revenue		Operating profit	Profit before tax		Profit	comprehensive
												income
Three Months Ended	Million yen		%	Million yen	%	Million yen	%	Million	%	Million yen	%
		yen
May 31, 2022	670		3.4	199	7.9	182	6.7		126	7.0	126	7.0
May 31, 2021	647		3.1	184	(13.4)	171	(13.9)		118	(14.4)	118	(14.4)
	Basic earnings per share		Diluted earnings per share
Three Months Ended				Yen					Yen
May 31, 2022				33.29				32.22
May 31, 2021				31.37				29.90

(2) Non-Consolidated Financial Position

	Total assets	Total equity	Total equity ratio
	Million yen	Million yen	%
As of May 31, 2022	7,060	4,296	60.9
As of February 28, 2022	7,122	4,323	60.7

2. Dividends

						Annual dividends
		1st		2nd		3rd		Year-end	Total
		quarter-end		quarter-end		quarter-end
		Yen		Yen		Yen		Yen	Yen
Fiscal year ended		－	0.00			－	40.44		40.44
February 28, 2022
Fiscal year ending		－
February 28, 2023
Fiscal year ending
February 28, 2023		－	0.00			－	40.50		40.50
(Forecast)

Note: Revision to the forecast for dividends announced most recently: None

3. Non-consolidated Financial Results Forecast for the Fiscal Year Ending February 28, 2023 (March 1, 2022 to February 28, 2023)

(% indicates changes from the previous corresponding period.)

	Revenue		Operating profit	Profit before tax	Profit		Basic earnings
			per share
	Million yen		%	Million yen	%	Million yen	%	Million yen		%	Yen
Full year	2,650		3.2	785	4.4	756	7.9	525		4.9	138.23

Note: Revision to the financial results forecast announced most recently: None

• Notes:
• 1. Changes in accounting policies and changes in accounting estimates
  2. 1. Changes in accounting policies required by IFRS: None
     2. Changes in accounting policies other than those in 1) above: None
     3. Changes in accounting estimates: None
  3. Number of shares issued (common shares)
  1. Total number of issued shares at the end of the period (including treasury shares): As of May 31, 2022: 3,800,373 shares
     As of February 28, 2022: 3,799,413 shares
  2. Total number of treasury shares at the end of the period:

As of May 31, 2022: 470 shares

As of February 28, 2022: 29 shares

3) Average number of shares during the period:

Three Months Ended May 31, 2022: 3,799,955 shares

Three Months Ended May 31, 2021: 3,768,531 shares

• These interim financial results are not subject to interim review by certified public accountants or audit firms
• Explanation of the proper use of financial results forecast and other notesNotes regarding forward-looking statements:
  Financial results forecasts and other forward-looking statements contained in this document are based on information currently available to the Company and certain assumptions that management believes to be reasonable and do not represent a commitment from the Company that they will be achieved. Actual results may differ substantially for various reasons. For the assumptions underlying the financial results forecasts and other notices on the use of financial results forecasts, please refer to "(4) Explanation of Non-consolidated Financial Results Forecast and Other Forward-looking Information" of "1. Qualitative Information on Interim Financial Results for the Period under Review" in the accompanying materials.

Table of Contents
1. Qualitative Information on Interim Financial Results for the Period under Review ................................................	1
(1)	Explanation of Business Results...........................................................................................................................	1
(2)	Explanation of Financial Position.........................................................................................................................	1
(3) Analysis of Cash Flows ........................................................................................................................................	2
(4)	Explanation of Non-consolidated Financial Results Forecast and Other Forward-looking Information .............	2
2. Interim Condensed Non-consolidated Financial Statements and Primary Notes .....................................................	3
(1)	Interim Condensed Non-consolidated Statements of Financial Position..............................................................	3
(2)	Interim Condensed Non-consolidated Statements of Profit or Loss and Comprehensive Income .......................	5
(3)	Interim Condensed Non-consolidated Statements of Changes in Equity .............................................................	6
(4)	Interim Condensed Non-consolidated Statements of Cash Flows........................................................................	7
(5)	Notes to Interim Condensed Non-consolidated Financial Statements..................................................................	8

1. Qualitative Information on Interim Financial Results for the Period under Review

(1) Explanation of Business Results

During the three months ended May 31, 2022, expectations for the Japanese economy to return to normal were rising as the spread of COVID-19 showed signs of settling down. Meanwhile, the outlook overseas was mired by concerns over economic instability given surging resource prices worldwide due to the prolonged Russia-Ukraine situation and fluctuations in the financial markets of countries around the world.

As for the environment in the security services market surrounding the Company, the investment demand for corporate security measures has continued expanding, due to increases in cyberattacks targeting supply chains and the threat of ransomware attacks (ransom-demanding-type viruses) targeting organizations such as general companies and hospitals.

Furthermore, amidst major changes in the corporate system network environment as a result of an increase in teleworking due to the impact of COVID-19 and other factors, there has been a tendency for companies that have difficulty operating and managing their security to outsource operations and monitoring to security vendors, which has led to a steady expansion of the market, as a whole.

In such an environment, the Company has expanded sales promotion of Vario Managed EDR, which detects signs of cyberattacks as an endpoint security measure, and data backup services (VDaP) that protect corporate information assets from the growing threat of ransomware attacks (ransom-demanding-type viruses), in addition to conventional gateway security, in order to support the development of a secure and safe business environment through multilayered defense against an increasing array of threats. As a successor model to our in-house developed network security equipment VSR (Vario Secure Router), we released the scalable model "VSR n series" with the aim towards linking it with services of other companies.

In addition, regarding the procurement of materials, the Company may be affected by a global shortage of semiconductors. At the moment, although the Company expects the effect of such a shortage to be minimal for the fiscal year ending February 28, 2023, it is difficult to rationally calculate the effect on the Company's performance for the fiscal year ending February 28, 2024 onward, and the Company will continue to monitor the situation.

In such an environment, the Company reported revenue exceeding that of the corresponding period of the previous fiscal year, and each level of profit under operating profit also increased year on year, due to the recurring revenue from Managed Security Services and a low cancellation rate (0.82%) (Note).

As result of the above, in the financial results on an IFRS basis for the three months ended May 31, 2022, the Company reported revenue of ¥670,074 thousand (a year-on-year increase of 3.4%), operating profit of ¥199,487 thousand (a year-on-year increase of 7.9%), profit before tax of ¥182,889 thousand (a year-on-year increase of 6.7%), and profit of ¥126,486 thousand (a year-on-year increase of 7.0%).

The results by segment are not stated, as the Company's segments comprise the single segment of Internet Security Services

Note: Cancellation rate (monetary basis) = Cancellation amount for the Three Months Ended May 31, 2022 / (Monthly revenue at the beginning of each fiscal year × 3)

(2) Explanation of Financial Position

The financial position on an IFRS basis as of May 31, 2022 was as follows. Assets

Total assets as of May 31, 2022 were ¥7,060,939 thousand, a decrease of ¥61,130 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥40,924 thousand in inventories and a decrease of ¥131,011 thousand in cash and cash equivalents.

Liabilities

Total liabilities as of May 31, 2022 were ¥2,764,232 thousand, a decrease of ¥34,778 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥46,897 thousand in other current liabilities, as well as decreases of ¥38,149 thousand in trade and other payables and ¥40,820 thousand in income taxes payable.

- 1 -