Net One : Results Briefing Q&A (Summary) for Q2 FY23

Net One Systems Co., Ltd.

Q2 FY03/24 results briefing Q&A (summary) 15:30 on Wednesday, November 1, 2023

Bookings in Q2 FY23

Q1: Please explain the reasons behind the delayed or lost bookings in Q2, and whether these trends are expected to continue moving forward.

A1: We observed a significant discrepancy between actual results and planned targets in the Public, Telecom Carrier, and Partner segments.

In the Public segment, we lost a large project worth JPY3.8bn. We usually win projects at a higher price than our competitors because we accurately understand our customers' requirements and they value the technical expertise that we offer. Unfortunately, we lost the booking for this particular project because it all came down to price. We will continue to propose solutions that leverage advanced technologies and secure these projects by gaining an accurate understanding of our customers' requirements.

Moving on to the Telecom Carrier segment, our plan for FY23 involves the co-creation business for corporate customers compensating for the dropout of a large product project in FY22. However, although bookings associated with the co-creation business for corporate customers are growing, they fell short of our expectations in Q2.

Lastly, in the Partner segment, we lost some projects to competitors; these projects involved wholesale sales of low-priced products to our partner companies. In the Partner segment, we mainly sell products wholesale to partner companies, but we combine product sales with technical support, which makes the business profitable. Partner companies obtained estimates from competitors to secure products in FY21 and FY22, when product delivery times were prolonged amid the semiconductor shortage. As a result, they sourced products from competitors at a lower price than ours in some projects involving lower-priced products that do not require technical support. Although this trend continues, we are taking measures such as expanding our offerings of security and cloud service products, areas in which we excel at adding value.

Q2: Please tell us more about the co-creation business for corporate customers in the Telecom Carrier segment. Telecom carriers have started to take action, but why have not you been able to grow the business as expected?

A2: There are two types of co-creation business in the Telecom Carrier segment. The first consists of system integration projects where we work with telecom carriers to make proposals to customers. The second involves supporting managed service providers (MSPs), in which we collaborate with telecom carriers to develop service platforms for MSPs.

We are making progress in winning bookings for large system integration projects. With regard to MSP projects, we plan to grow this business with a medium- to long-term outlook. Revenue from the co-creation business in 1H FY23 increased approximately JPY2.0bn from a year earlier, with a

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Net One Systems Co., Ltd.

Q2 FY03/24 results briefing Q&A (summary) 15:30 on Wednesday, November 1, 2023

growth rate of about 40%. However, this was not enough to compensate for the dropout of the large product project in FY22.

Q3: Bookings in the Partner segment, where you primarily sell wholesale products, are declining. Do you have plans to revise your strategy for the Partner segment amid a companywide shift from products to services?

A3: We have pursued a strategy of focusing on selected businesses in the past few years, and our focus on certain markets and customers likely played a part in the fall in bookings. From FY24 onward, we intend to avoid repeats of recent significant booking shortfalls by expanding the scope of our Partner segment to include new markets and customers, thereby developing a business portfolio capable of achieving sustained growth.

Bookings in 2H FY23

Q4: With regard to bookings in 2H, you commented that most bookings are expected in Q4. What is your outlook for the YoY change in bookings in Q3?

A4: We anticipate recording the majority of our 2H bookings in Q4. For Q3, we project that the level of bookings will remain flat YoY.

Q5: What is the likelihood of you achieving your forecast of roughly 13% YoY increase in bookings in 2H?

A5: Our forecast is based on the total project volume, taking into account the likelihood of securing bookings. We expect to achieve our forecast because some bookings were postponed from 1H to 2H in the Telecom Carrier and Public segments.

Q6: What is your outlook for the booking environment in the Enterprise segment? Your 2H plan calls for over 20% YoY growth, but is this achievable?

A6: We are confident that our forecast for the Enterprise segment is realistic. While we faced challenges in securing bookings in some business areas in 1H, our forecast for 2H is backed up by various projects, including some in new business areas.

Earnings outlook for FY24

Q7: I have a question about your outlook for bookings in FY24. You mentioned that bookings in the Public segment are performing strongly, but does that mean you expect flat performance for the other segments?

A7: We expect overall bookings to increase by more than 10% from our revised forecast in FY24. We anticipate the largest growth in the Public segment, where we predict bookings associated with a large project to exceed JPY15.0bn. We also expect growth in the Enterprise and Partner segments, but look for flat bookings in the Telecom Carrier segment.

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