Non-consolidated Financial Results for the Second Quarter of the Fiscal Year Ending October 31, 2021

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Tobila Systems Inc. (4441) Financial Results for the Second Quarter of FY10/21

1. Qualitative Information on Quarterly Financial Performance

(1) Explanation of Results of Operations

Teleworking is increasing in Japan, especially in metropolitan areas, as people become accustomed to new life styles created by the COVID-19 pandemic. Timely communication is essential for teleworking, and there was a growing awareness of the vital role of telephones. In addition, companies are enacting business process reforms in order to achieve a digital transformation. All of these events are creating more interest in ICT tools and other items for improving the efficiency of business activities.

The number of fraud and spam activities using either phone calls or text messages (SMS phishing) targeting smartphone users and the resulting monetary losses are consistently high. Recently, due to the global spread of COVID-19, fraud associated with COVID-19 pandemic is on the increase. Fraud activity that creates worries and threatens public safety is a constant problem. There is an increasing need for measures to maintain a safe communication environment that protects people from fraud, which is becoming increasingly frequent and sophisticated. As a result, there are growing expectations regarding our security products and services that are effective at protecting smartphone users from fraud.

We have focused our resources on fraud and spam prevention services based on our corporate philosophy "We open the door to a better future for our lives and the world." Fraud and spam activities through phone calls or the Internet are an increasingly serious problem in Japan. Consequently, supplying effective products and services to solve this problem will contribute to our medium to long -term sustainable growth. We have taken actions to enlarge service alliances, strengthen cooperation and increase MAU (Monthly Active Users) for more utilization of our fraud and spam prevention services. In addition, we focused on increasing sales of the cloud -based IP phone service TobilaPhone Cloud, which is also an effective service for teleworking.

While sales growth was steady, corporate expenses, which are not allocated to a reportable segment, were higher than one year earlier due to an increase in administrative expenses associated with the larger scale of operations.

As a result, net sales increased 17.6% year-on-year to 693,939 thousand yen in the first half of the fiscal year ending October 31, 2021. Operating profit increased 18.1% to 286,076 thousand yen, ordinary profit increased 32.7% to 286,245 thousand yen and profit was up 32.5% to 197,569 thousand yen.

Note: MAU is an important KPI for determining the contribution of our products and services to eliminating problems caused by fraud and spam activities. Our revenue is, however, not always dire ctly affected by an increase or decrease in MAU because contracts with business clients such as telecommunications companies have different terms.

Business segment performance was as follows:

Fraud and spam prevention services

There are three service categories in this segment. A filtering service that blocks fraudulent and other malicious calls on mobile phones is the core business. The other categories are a filtering service for landline phones and TobilaPhone Cloud, a filtering service for phones used by businesses. We continued to focus on building an even larger and more powerful foundation for the provision of filtering services.

As a result, first half sales were 652,401 thousand yen, up 20.9% from one year earlier, and segment profit increased 15.8% to 431,535 thousand yen.

Others

Other services include a website design and operation support service, development projects outsourced by other companies and other activities. We do not intend to increase the scale of operations in this segment. First half sales decreased 18.0% from one year earlier to 41,538 thousand yen, and the segment profit was 24,992 thousand yen, down 3.9%.

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Tobila Systems Inc. (4441) Financial Results for the Second Quarter of FY10/21

Total operating profit is the sum of the profit of the two segments minus corporate expenses, which are not allocated to the reportable segment. Corporate expenses mainly consist of selling, general and administrative expenses that are not attributable to the reportable segment. In the first half, corporate expenses increased 9.0% from one year earlier to 170,451 thousand yen mainly because of higher administrative expenses because of the larger scale of operations.

1. Explanation of Financial Position 1) Assets, liabilities and net assets Total assets

Total assets decreased 82,623 thousand yen from the end of the previous fiscal year to 1,565,341 thousand yen at the end of the second quarter of the current fiscal year. This was attributable mainly to a decrease of 170,004 thousand yen in cash and deposits, which was partially offset by increases of 23,279 thousand yen in intangible assets, 30,039 thousand yen in investment securities, 19,004 thousand yen in long-term prepaid expenses and 9,691 thousand yen in deferred tax assets.

Liabilities

Total liabilities decreased 24,951 thousand yen from the end of the previous fiscal year to 275,904 thousand yen. The main factors include decreases of 16,833 thousand yen in accounts payable -other, 7,852 thousand yen in deposits received, 11,072 thousand yen in accrued consumption taxes and 6,504 thousand yen in long-term borrowings, which were partially offset by a 12,616 thousand yen increase in income taxes payable and a 7,874 thousand yen increase in advances received.

Net assets

Total net assets decreased 57,671 thousand yen from the end of the previous fiscal year to 1,289,437 thousand yen. The main factors include the booking of profit of 197,569 thousand yen, a decrease of 112,161 thousand yen in retained earnings due to dividends paid and purchase of treasury shares o f 154,563 thousand yen.

2) Cash flows

Cash and cash equivalents (hereinafter, "net cash") at the end of the first ha lf of the current fiscal year decreased 170,004 thousand yen from the end of the previous fiscal year to 1,048,354 thousand yen. Cash flows by category are as described below.

Cash flows from operating activities

Net cash provided by operating activities amounted to 203,184 thousand yen compared with 148,808 thousand yen in the same period of the previous fiscal year. This was mainly due to profit before income taxes of 286,200 thousand yen, depreciation of 27,274 thousand yen, a decrease of 3,104 thousand yen in inventories and an increase of 7,874 thousand yen in advances received, while there were income taxes paid of 86,018 thousand yen, an increase of 14,288 thousand yen in trade receivables and a decrease of 9,233 thousand yen in accounts payable -other.

Cash flows from investing activities

Net cash used in investing activities amounted to 78,070 thousand yen compared with 93,224 thousand yen in the same period of the previous fiscal year. The main factors include payments for the purchase of property, plant and equipment of 9,510 thousand yen, intangible assets of 40,212 thousand yen and investment securities of 30,039 thousand yen.

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