Freee K K : Financial Results for Q3 FY2021.6

English Translation

This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.

Consolidated Financial Results

for the Nine Months Ended March 31, 2021

[Japanese GAAP]

May 12, 2021

Company name: Listing: Securities code: URL: Representative: Inquiries:

TEL:

freee K.K.

Tokyo Stock Exchange 4478

http://www.freee.co.jp

Daisuke Sasaki, Representative Director and CEO Sumito Togo, Director and CFO [phone]

Scheduled date to file quarterly securities report:	May 12, 2021
Scheduled date to commence dividend payment:	-
Preparation of supplementary materials on financial results:	Yes
Holding of financial results meeting:	Yes (for institutional investors and analysts)

(Millions of yen with fractional amounts rounded down, unless otherwise noted)

1. Consolidated financial results for the first nine months of the fiscal year ending June 30, 2021 (from July 1, 2020 to March 31, 2021)

(1)	Consolidated operating results					(Percentages indicate year-on-year changes.)
		Net sales		Adjusted			Operating profit		Ordinary profit		Profit attributable to
			operating profit					owners of parent
Nine months ended	Millions of yen	%	Millions of yen	%		Millions of yen		%	Millions of yen	%	Millions of yen		%
March 31, 2021	7,306	49.5	(1,341)	-		(1,437)		-	(1,513)	-	(1,519)		-
March 31, 2020	4,887	-	(1,883)	-		(1,974)		-	(2,231)	-	(2,236)		-
Note:	1. Comprehensive income	Nine months ended March 31, 2021:	¥(1,519) million [-%]
			Nine months ended March 31, 2020:	¥(2,236) million [-%]

2. Adjusted operating profit is the sum of the operating profit, stock-based compensation expenses, expenses for amortization of acquisition-related intangible assets, and one-time cost.

		Basic earnings per share	Diluted earnings per
		share
Nine months ended	Yen	Yen
March 31, 2021	(31.10)	-
March 31, 2020	(51.07)	-
Note: 1.	The Company conducted a 3-for-1 stock split of common stocks effective September 25, 2019. The "Earnings per share" is
	calculated assuming that the said stock split was conducted at the beginning of the previous consolidated fiscal year.

1. 2. Diluted earnings per share is not stated because, although potential shares exist, basic loss per share was recorded.

2. Consolidated financial position

	Total assets	Net assets	Equity-to-asset ratio
As of	Millions of yen	Millions of yen	%
March 31, 2021	18,407	12,676	66.9
June 30, 2020	17,898	13,854	75.1

Reference:	Equity
	As of March 31, 2021:	¥12,310 million
	As of June 30, 2020:	¥13,447 million

English Translation

This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.

2. Dividends

Annual dividends

First quarter-end

Second quarter-end

Third quarter-end

Fiscal year-end

Total

Fiscal year ended

Yen

Yen

Yen

Yen

Yen

-

0.0

-

0.0

0.0

June 30, 2020

Fiscal year ending

-

0.0

-

June 30, 2021

Fiscal year ending

0.0

0.0

June 30, 2021

(Forecast)

Note:

Revisions to the forecast of dividends most recently announced: None

3. Consolidated earnings forecasts for the fiscal year ending June 30, 2021 (from July 1, 2020 to June 30, 2021)

(Percentages indicate year-on-year changes.)

			Net sales		Adjusted
				operating profit
			Millions of yen	%	Millions of yen		%
Fiscal year ending	10,200	47.9	(2,212)		-
June 30, 2021
Note:	1.	Revisions to the earnings forecasts most recently announced: Yes

• 2. Adjusted operating profit is the sum of the operating profit, stock-based compensation expenses, expenses for amortization of acquisition-related intangible assets, and one-time cost.

• Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the

change in scope of consolidation): None

1. Application of specific accounting for preparing the quarterly consolidated financial statements: None
2. Changes in accounting policies, changes in accounting estimates, and retrospective restatement
3. 1. Changes in accounting policies due to revisions to accounting standards and other regulations: None
   2. Changes in accounting policies other than a. above: None
   3. Changes in accounting estimates: None
   4. Retrospective restatement: None
4. Number of issued shares (Common stock)
5. 1. Total number of issued shares at the end of the period (including treasury stock)

	As of March 31, 2021		49,727,438 shares
	As of June 30, 2020		48,320,822 shares
b. Number of treasury stock at the end of the period
	As of March 31, 2020		-
	As of June 30, 2020		-
c. Average number of outstanding shares during the period
	Nine months ended March 31, 2021		48,866,412 shares
	Nine months ended March 31, 2020		43,796,114 shares

*

*

Note: The Company conducted a 3-for-1 stock split of common stocks effective September 25, 2019. The " Total number of issued shares " and " Number of treasury stock " and "Average number of outstanding shares" are calculated assuming that the said stock split was conducted at the beginning of the previous consolidated fiscal year.

This consolidated financial results are exempt from quarterly review conducted by certified public accountants or an audit firm.

Explanation of proper use of earnings forecasts, and other items

Forward-looking statements, including the consolidated forecasts stated in these materials, are based on information currently available to the Company and certain assumptions deemed reasonable. The achievement of said forecasts cannot be promised. Results may differ materially from the consolidated forecasts due to various factors.

English Translation

This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.

Table of contents
1. Qualitative information regarding results for the period	2
(1)	Explanation of operating results	2
(2)	Explanation of financial position	3
(3)	Explanation of consolidated earnings guidance and other forward-looking statements	3
2. Quarterly consolidated financial statements and significant notes thereto	4
(1)	Quarterly consolidated balance sheet	4
(2)	Quarterly consolidated statement of income and quarterly consolidated statement of comprehensive income	6
(3)	Notes to quarterly consolidated financial statements	8
	Notes on going concern assumption	8
	Notes on significant changes in the amount of shareholders' equity	8
	Significant subsequent events	8

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English Translation

This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.

1. Qualitative information regarding results for the period

(1) Explanation of operating results

We estimate that the TAM (*1) for cloud accounting and HR software for small businesses is around 1.2 trillion yen (*2). At present, however, among SMBs with 1,000 or fewer employees and self-employed that use accounting software, the adoption rate of cloud accounting software is only 22.5% (*3) . We believe that this relatively low adoption rate represents an opportunity for us to further expand the use of cloud ERP software among SMBs. In line with our corporate mission "Empower Small Businesses to Take Center Stage," (*4) we develop and offer services aimed at realization of "a platform that allows anyone with ideas, passion, and skills to easily grow a robust and streamlined business."

During the period under review (July 1, 2020, to March 31, 2021), in pursuit of this mission, we endeavored to further broaden the customer base by expanding our direct sales organizations and strengthening collaboration with financial institutions and partner companies. Moreover, we launched a smartphone app dedicated to electronic tax filing while releasing a beta feature to link to the government-run Mynaportal website, with a view to helping advance electronic tax filing.

Furthermore, to increase value to customers, we invested in development to enhance the functionality of our core services Accounting freee and HR freee. We also announced making Sight Visit Inc. a subsidiary with the aim of entering the legal operations field and thereby accelerating the development of integrated cloud ERP.

Consequently, as of the end of the period under review, ARR (*5) jumped 49.9% year-over-year to 10,533 million yen, the number of paying customers (*6) grew 34.2% to 281,822, and ARPU (*7) rose 11.7% to 37,376 yen.

As a result of the above, for the period under review, freee K.K. ("the Company") reported net sales of 7,306 million yen, up 49.5% year-over-year, as well as adjusted operating loss (*8) of 1,341 million yen (1,883 million yen for the same period of the previous fiscal year; same hereinafter), operating loss of 1,437 million yen (1,974 million yen), ordinary loss of 1,513 million yen (2,231 million yen), and loss attributable to owners of parent of 1,519 million yen (2,236 million yen).

Trends in ARR, Number of Paying Customers and ARPU

	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2020	Mar. 31, 2020	Mar. 31, 2021
ARR (¥ million)	2,986	5,273	7,898	7,025	10,533
Number of paying	115,808	160,132	224,106	209,958	281,822
customers
ARPU (¥)	25,786	32,930	35,246	33,461	37,376

(Notes) 1.TAM：Total Addressable Market. This figure represents our estimate of our maximum market opportunity and is not intended as an objective indicator of the actual size of the market for our businesses as of the date of submission of this report. Our estimate of the TAM for accounting software and HR software for small businesses is based on certain assumptions and was calculated using statistical data and publications from external sources by the calculation method shown in 2 below. Actual market size may differ from this estimate due to the limitations peculiar to such statistical data and publications in terms of their accuracy.

2.Total annual spending of all potential customers assuming that all potential customers in Japan adopted Accounting freee and HR freee. All potential customers are the total of self-employed and SMBs with less than 1,000 employees. (Number of businesses in each category among all potential customers of Accounting freee and HR freee ("Tax Statistics 2017" by National Tax Agency and "Economic Census for Business Activity, June 2016" by Ministry of Internal Affairs and Communications) × Annual base charge of Accounting freee and HR freee for each category) + (Estimated average number of employees in each category ("Employment Status Survey, 2017" by Ministry of Internal Affairs and Communications) × Annual charge per ID) .

3.International Data Corporation(IDC), "Worldwide Public Cloud Services Spending Guide Software Add On: V1 2021." 4.Small Businesses refers to businesses with 1,000 or fewer employees as well as self-employed individuals.

5.ARR: Annual Recurring Revenue. Monthly Recurring Revenue for last month of relevant period, multiplied by 12. Monthly Recurring Revenue is defined as the amount of fees contracted to be paid by customers on a monthly basis as of the end of a particular month (excludes one-time fees).

6.Refers to both self-employed and corporations that use our services.

7.ARPU: Average Revenue Per User. Annual Recurring Revenue as of the end of the relevant period divided by the number of paying customers as of the end of the same period.

8.Adjusted operating profit is the sum of the operating profit, stock-based compensation expenses, expenses for amortization of acquisition-related intangible assets, and one-time cost.

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English Translation

This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.

(2) Explanation of financial position

(Assets)

Total assets at the end of the period under review amounted to 18,407 million yen, an increase of 509 million yen from the end of the previous fiscal year. This was primarily due to increases in accounts receivable-trade by 272 million yen, other current assets by 278 million yen, and investment securities by 259 million yen, in spite of a decrease in cash and deposits by 421 million yen.

(Liabilities)

Total liabilities at the end of the period under review came to 5,731 million yen, an increase of 1,687 million yen from the end of the previous fiscal year. This was mainly because of increases in unearned revenue by 966 million yen and other payable by 541 million yen.

(Net assets)

Total net assets at the end of the period under review were 12,676 million yen, a decrease of 1,178 million yen from the end of the previous fiscal year. This was chiefly owing to a decrease in retained earnings by 1,519 million yen resulting from the posting of loss attributable to owners of parent.

(3) Explanation of consolidated earnings guidance and other forward-looking statements

Since the beginning of the fiscal year ending June 30, 2021, customer acquisition has been strong, especially in the Self-employed and Small segments. Principally on account of this factor, we have revised up our consolidated net sales guidance for the fiscal year to 10,200 million yen, an increase of 542 million yen from the previously announced guidance.

On the other hand, the adjusted operating profit guidance remains unchanged to increase sales and marketing expenses than expected at the beginning of the fiscal year due to strong customer acquisition and implementation of initiatives to raise brand awareness to acquire new customers in the future.

For further details, see "Notice Concerning Revision of Consolidated Guidance for Fiscal Year Ending June 30, 2021," separately disclosed today, May 12, 2021.

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