Japan Communications : First Quarter Flash Financial Report for Fiscal Year Ended March 31, 2023

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

August 4, 2022

Consolidated Financial Results

for the Three Months Ended June 30, 2022

(Under Japanese GAAP)

(Yen amounts are rounded down to millions, unless otherwise noted.)

1. Consolidated financial results for the three months ended June 30, 2022 (from April 1, 2022 to June 30, 2022)

2. Cash dividends

Note: Revisions to the forecast of cash dividends most recently announced: None

3. Overview and management policy for the fiscal year ending March 31, 2023

Since its founding in 1996, the Company has propounded and implemented the MVNO business model, an innovative form of telecommunications business, having developed its business with the mission of transferring (communicating) data safely, securely, and conveniently. Specifically, the Company is engaged in three businesses: mobile communications business (SIM business), communications business through local mobile networks (local 4G/5G), and digital ID (FPoS: Fintech Platform over SIM) business for use on smartphones. The Company plans to build a stable income stream by continuing the evolution of the SIM business, as well as to develop the local 4G/5G business and FPoS business to become the pillar of future earnings by investing in the two businesses.

In the local 4G/5G business, the Company aims to build advanced showcases in the U.S. and leverage the experience to expand in Japan.

In the FPoS business, the Company has acquired certification under the Digital Signature Act for "my Digital Certificate" (the issuing entity is my FinTech Inc., a subsidiary of the Company.) based on its patented FPoS technology, and are working on its actual use as a digital ID that can be used safely, securely, and conveniently on smartphones.

With the surrounding situation above described, the management of the Company perceives a market capitalization of 500 billion yen as the growth business scale in three to five years from the launch of commercial service of FPoS (expected within this fiscal year).

* Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): None
2. Adoption of accounting treatment specific to the preparation of quarterly consolidated financial statements: None
3. Changes in accounting policies, changes in accounting estimates, and restatement
4. 1. Changes in accounting policies due to revisions to accounting standards and other regulations: None
   2. Changes in accounting policies due to other reasons: None
   3. Changes in accounting estimates: None
   4. Restatement: None
5. Number of issued shares (common shares)
6. 1. Total number of issued shares at the end of the period (including treasury shares)

(ii) Number of treasury shares at the end of the period

1. Average number of shares outstanding during the period (cumulative from the beginning of the fiscal year)

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit corporation.
• Proper use of earnings forecasts, and other special matters
  A financial results meeting will be held on Friday, August 5, 2022 for institutional investors, analysts and the press. The Company plans to post a video of this financial results meeting on its website promptly after the meeting is held.

1. Qualitative Information on Results for the Three Months Ended June 30

1. Explanation on operating results
   Since its founding in 1996, the Company has propounded and implemented the MVNO business model, an innovative form of telecommunications business, having developed its business with the mission of transferring (communicating) data safely, securely, and conveniently. Specifically, the Company is engaged in three businesses: mobile communications business (SIM business), communications through local mobile networks business (local 4G/5G), and digital ID (FPoS: Fintech Platform over SIM) business for use on smartphones.
   The Company plans to build a stable income stream by continuing the evolution of the SIM business, as well as to develop the local 4G/5G business and FPoS business to become the pillar of future earnings by investing in the two businesses.
2. 1. Mobile Communications Business (SIM business)
      In July 2020, the Company launched the "Nihon Tsushin SIM," which provides flat-rate voice plans equivalent to that of major mobile operators, following the June 2020 ruling by the Minister for Internal Affairs and Communications that set the prices of wholesale telecommunication services relating to voice communications services provided to the Company from NTT DOCOMO, INC. shall not exceed the amount of the appropriate costs under efficient management plus appropriate profit. The Company has timely introduced new additional plans to "Nihon Tsushin SIM," increasing net sales continuously.
      Since April 2022, an eSIM that is embedded in a device like a smartphone can be selected for "Nihon Tsushin SIM," in addition to a conventional SIM card. An eSIM is a SIM by which subscriber identity information (profiles) necessary for using telecommunication services can be remotely written to eSIM embedded in devices such as iPhone and users can change mobile service operators without replacing SIM cards, as was the case before.
      The replacement cycle for smartphones has been prolonged as evolution of functions has reached a certain level and more customers consider lowering communication expenses due to a hike in prices caused by the Ukrainian situation. Amid these conditions, eSIMs are accepted by customers who want to use two lines on one smartphone and use two phone numbers separately for business and private purposes on one smartphone.
      In addition, the Company has requested NTT DOCOMO, INC. for an interconnection of voice networks in June 2022 (announced on June 10, 2022). This request, which the Company had been considering for long time, was made as the Information and Communications Council of the Ministry of Internal Affairs and Communications presented a policy of allocating mobile numbers (090, etc.) to MVNOs in December 2021. The Company will secure a stable business foundation by procuring both data and voice communication networks through interconnection, aiming at a business model as a "Neo Carrier" that ensures flexibility in both technology and price.
   2. Local 4G/5G Business through Local Mobile Networks
      A U.S. subsidiary of the Company operates a business that provides SIMs used for connections with local mobile networks in the U.S. market. For connections with local mobile networks, it is necessary to write a large amount of highly specialized information to SIMs. The Company provides SIMs that are able to connect to local mobile networks set up by partner and customer companies by accumulating and utilizing technologies and expertise in relevant fields through the U.S. subsidiary. By utilizing achievements in the leading U.S. market, the Company is planning similar initiatives for the local 4G/5G business in Japan.
   3. Digital ID (FPoS) Business for Use on Smartphones
      Under the "Vision for a Digital Garden City Nation" (vision to realize a comfortable life for everyone so that they enjoy benefits from digitalization, leaving no one behind by solving regional issues through digital implementation) which was declared by the Japanese government in 2021, it was announced on June 17, 2022 that project applications by Maebashi City, Ebetsu City (Hokkaido Prefecture), and Gunma Prefecture were adopted. The project applications by these three local governments are each premised on usage of the Maebashi ID (official name TBD), on which the Company is working on as the first case in

the FPoS business. Accordingly, the Company plans to provide FPoS based services in these three regions during the current fiscal year. A Maebashi ID is understood as a platform on which both public services such as administrative procedures and other private services can be used with a single ID using a smartphone and the Company will fully support implementation of this platform in these three regions during the current fiscal year.

As a result of the above, the Group's consolidated net revenue for the three months ended June 30, 2022 were 1,353 million yen, an increase of 297 million yen (up 28.1%) compared to the three months ended June 30, 2021 (hereinafter referred to as the "same period of the previous year"). This was partially due to an increase of revenue from initial fees relating to acquisition of new customers and monthly fees resulting from growth of the flat-rate or semi-flat rate voice services centered on "Nihon Tsushin SIM" in the MVNO Business (up 16.7% from the same period of the previous year) and growth of the Enabler Business including voice services provided under partner brands (up 43.8% from the same period of the previous year).

Cost of revenue was 767 million yen, an increase of 128 million yen (up 20.2%) compared to the same period of the previous year. While payment of wholesale voice costs of flat-rate or semi-flat rate voice services increased along with an increase in users, mainly "Nihon Tsushin SIM" users, decreased inter-connection fees per unit with data communication carriers reduced costs despite bandwidth acceleration measures with NTT DOCOMO, INC. Thus, the cost ratio improved compared to the previous quarter and the gross profit margin has improved.

As a result, gross profit amounted to 586 million yen, an increase of 168 million yen (up 40.3%) compared to the same period of the previous year. Operating profit amounted to 158 million yen (24 million yen for the same period of the previous year) and profit attributable to owners of parent amounted to 161 million yen (28 million yen for the same period of the previous year).

Financial results by business are as follows

Revenue of 41 million yen (31 million yen in the same period of the previous year) from overseas operations in the segment information are included in the Enabler Business.

1. Explanation on financial position

1. Assets, liabilities and net assets

Assets

Current assets at the end of the current first quarter were 1,522 million yen, an increase of 111 million yen compared to the end of the previous year. This was mainly due to increases of 80 million yen in accounts receivable - trade and 27 million yen in merchandise. Non-current assets were 578 million yen, an increase of 46 million yen compared to the end of the previous year. This was mainly due to an increase of 38 million yen in intangible assets.

As a result, total assets amounted to 2,102 million yen, an increase of 158 million yen compared to the end of the previous year.

Liabilities

Current liabilities at the end of the current first quarter were 1,111 million yen, an increase of 5 million yen compared to the end of the previous year. Non-current liabilities were 64 million yen, an increase of 11 million yen compared to the end of the previous year. This was due to an increase of 11 million yen in long- term unearned revenue.